VSF price is now at 10-year historic low, but the trend seems to be unclear in Oct. Three key points are noteworthy:
1. Production and consumption instead of supply and demand
The operating rate of VSF industry is currently at 78%, which is slightly higher than medium level within the year, but much lower versus the same period of past years. Although some units are likely to resume operation in Oct, the increment of run rate will be limited amid current profits. Meanwhile, CHTC Helon will start to be relocated since Oct and will be unable to produce fibers for a long time, so there is no big room for further increase of production. As to demand, rayon yarn mills are running with the operating rate of around 74%, but they are unable to run at full capacity in consideration of shifting among different varieties, so 74% is just at medium to slightly higher level. Most spinners do not show intention of production cut in the short run and they may even further raise operating rates instead, thus the consumption of VSF will not decline in the short term. To sum up, VSF production may be hard to increase much while consumption is also difficult to decrease notably.
2. Capital
Capital is an important driving force of the market. According to intensive adjustment of regulator recently, banks may enter the stage of countercyclical adjustment and liquidity will tend to be loose. Although such macro guidance may not conduct to manufacturing industry in the short run, the plight of snow plus frost is avoidable. As to specific industry, viscose fiber scale is large and most companies are state-owned ones, so no big capital pressure is expected in Oct. Comparatively speaking, grey fabric and fabric that is sold on credit may be under bigger capital burden, so the influence of capital in Oct depends on the improvement of end-user market and whether the pressure brought by credit sales will further conduct to upstream segment.
3. Mentality
Mentality is intangible and constantly changing, but generally speaking, confidence may become the short board in Oct due to the influence of Sino-US trade disputes and the coming traditional slack season in the fourth quarter.
VSF market seems to face prisoner's dilemma in Oct in terms of game theory. The stability of all companies without supply-demand imbalance may maximize collective interest, but trying to obtain more orders before slack season is a better option to individuals.
Individual optimal plan will be generally carried out from the angle of game theory and Nash equilibrium will be reached, but it is not one-time game to viscose industry. Whether the market could be rational in confidence and trust after repeated games may be crucial to the trend in Oct.
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