CITIC SEC: The supply and demand for viscose filament is expected to be tight, which may drive prices to rise in a stepped manner. Pay attention to the profit elasticity of leading enterprises.

CITIC SEC released a research report stating that the sustained growth in export demand and near-full capacity operation of existing supply indicate that the viscose filament yarn industry is likely to enter a phase of tight supply and demand with an upward price trajectory. The growth in consumption of traditional Indian attire is driving an increase in China's viscose filament yarn exports, which are expected to rise by 18.2% year-on-year to 114,000 tons in 2025, and further increase by 30.9% in the first half of 2026. At the same time, the domestic industry's operating rate is projected to reach 89.8% by 2025, and semi-continuous spinning capacity may face pressures from policy elimination, environmental upgrades, and relocations. The firm anticipates that from 2026 to 2028, the industry will experience a supply-demand gap, with product prices showing upward elasticity. They particularly recommend leading enterprises. CITIC SEC's main points are as follows: The expansion of the Indian market drives exports, becoming the core source of demand growth for viscose filament yarn. According to Baichuan Yingfu, in 2025, China's viscose filament yarn exports are projected to grow by 18.2% year-on-year to 113,600 tons, accounting for 44.4% of domestic production; in the first half of 2026, export volume is expected to be about 67,000 tons, a year-on-year increase of 30.9%. Among these, China's exports to India will reach 70,200 tons in 2025, which makes up 61.8% of total exports, with India and Pakistan together accounting for 84.2%. There is stable demand from the Indian market for high-gloss and high-drapability fibers used in sarees, traditional apparel, and women's fabrics, and given the relatively limited growth of local viscose filament yarn supply in India, the firm believes that Chinese companies are becoming the primary beneficiaries of the demand increase in the Indian market. High concentration combined with environmental constraints limits further release of viscose filament yarn supply. According to Baichuan Yingfu, in 2026, the effective domestic viscose filament yarn production capacity will be around 285,000 tons per year, with the two leading enterprises each having an effective capacity of about 110,000 tons per year, resulting in an industry CR2 (concentration ratio) of 78%. By 2025, the industry's operating rate had reached 89.8%, and in the first half of 2026, production is expected to decline by 2.0% year-on-year to 130,800 tons, indicating that existing installations are operating at high load levels. Meanwhile, the "Guidance Catalogue for Industrial Structure Adjustment (2024 Edition)" released by the National Development and Reform Commission lists semi-continuous spinning viscose filament yarn production lines for elimination, and the relocation, environmental upgrades, and exit of existing installations may further constrain effective supply. The firm expects a supply-demand gap of about 10,000 tons in the industry from 2026 to 2028, with industry inventory and supply elasticity likely continuing to decline. The tightening supply-demand balance is expected to drive a stepwise increase in prices, emphasizing the profit elasticity of leading enterprises. According to Baichuan Yingfu, the average market price of viscose filament yarn rose from 36,900 yuan/ton in 2020 to 43,500 yuan/ton in 2025, showing a general pattern of "upward followed by maintenance" in pricing. In March 2026, the market price was further adjusted upwards by 1,000 yuan/ton to 44,500 yuan/ton, and then remained stable. Based on a single company with an annual capacity of 110,000 tons, a 90% operating rate, a 13% value-added tax, and a 15% corporate income tax rate, every 1,000 yuan/ton increase in product price is expected to add approximately 74 million yuan to net profit; a 2,000 yuan/ton increase would correspond to an additional net profit of about 149 million yuan. The industry's dual leading enterprises are likely to be the main beneficiaries of price increases and enhanced industry concentration. Investment strategy: Both leading companies possess approximately 110,000 tons/year of viscose filament yarn capacity and will be direct beneficiaries of the improvement in the industry's supply structure and product price increases; among them, companies with a higher ratio of continuous spinning, more stable operational performance, and stronger export customer resources are expected to achieve greater profit elasticity and market share enhancement. Risk factors: Overseas demand falling short of expectations, risks from changes in export policies, new capacity additions exceeding projections, slower-than-expected phase-out of outdated capacity, product price increases not meeting expectations, and rising raw material and energy costs.