Can China's VSF Plants Slow Down Price Hikes?

Market News

Can China's VSF Plants Slow Down Price Hikes?

China's VSF market has strongly rebounded since the sales volume increased around June 8 as the price has gained more than 1,000yuan/mt from 14,580yuan/mt to 15,650yuan/mt in one month. According to analysts, this round of increase is a normal recovery process after the price shed caused by excessive destocking.

Major VSF producers have the similar understanding, so large-sized plants reached the agreement of slowly raising offers in the first half of June. The objective is reasonable recovery of price and maintenance of performance price ratio to simultaneously boost demand, which is a rational understanding in view of the general industry. Large-scale medium-grade VSF plants expect the price to recover around 15,200 yuan/mt in one month.

Although most plants are trying to slow down price increase, the increment is far higher than expected in less than one month. Moreover, the tightness of supply has exceeded the expectation of most participants.

VSF plants cannot stop prices rising and the price is impossible to change as schedule under market economy. Once the upward expectation is confirmed and the increase exceeds holding cost, building up stocks as soon as possible is an inevitable choice to each buyer, no matter the price rises slowly or fast. Thus, demand is releasing rapidly when VSF plants slowly raise offers, leading to contradiction between supply and demand. Although some VSF plants try to adjust part of demand by controlling daily sales volume, there is minimal effect.

VSF plants have reached a tacit understanding with downstream sector through years of cooperation, which is to meet the requirement for production of long-term users. The consumption of some spinners is increasing with the coming autumn and winter.

Although VSF companies generally have their own database of huge customer base, it is difficult to accurately allocate fibres among those users. Consequently, some of them have to seek price leverage again to adjust demand.

VSF price is expected to increase further in the short run, but producers should take a long-term perspective, aiming at maintaining stable and sustainable demand, restraining price increase by respecting market regulations.