Market Morsel: I’d like you to meet Bond, Chinese Bond

Fibre | 18th December 2020 | By Andrew Woods

Market Morsel

Since 2007-2008 one of the best correlated economic indicators with apparel fibres has been the Chinese credit through Chinese bond yields.

The first graph compares the yield on a Chinese 5 year bond (right hand scale inverted)
which is advance by 18 months to the year on year change in a price series for acrylic staple fibre (left hand scale). The lag for the bond yield seems to be between 12-18 months, so it gives something of a forward view for one factor on the demand side.

In 2020, COVID-19 pushed the acrylic price sharply lower in spite of the bond yield pointing to some economic tailwinds (supportive for prices). Since August the acrylic price has rebounded and started to follow the lead of the bond yield again. When looking forward the bond yield points to a peak at some stage in mid-2021, suggesting a softening in demand later in 2021.

The next graph replaces the acrylic price series with the 19.5 MPG in USD terms. It gives a similar story. Price looks to have a tailwind until around mid-2021, when headwinds develop. Hopefully demand can recover from COVID-19 reasonably quickly in the next six months to take advantage of the economic tailwinds.

Provided by Elders Wool. Prepared by Andrew Woods (Independent Commodity Services) with contributions from the Elders wool team.

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