Cotton Yarn Finally Welcomes Rise Yet Cautious Expectation Still Needed

Date:Nov 12, 2019

Cotton yarn finally welcomes rise in Nov amid the continuous increase of cotton, but the rise is not large. Textile market participants still hold cautious expectation to later market.

After National Day holiday, Xinjiang seed cotton price sustained rising and ZCE cotton futures also remained strong with an increase of over 1000yuan/mt. Spot cotton price also moved up by about 600yuan/mt. Underpinned by the continuous rise of cotton price, cotton yarn started to climb up in Nov, especially this week, more cotton yarn mills raised prices. However, the increment was not large. In actual trading, conventional cotton yarn and high-count cotton yarn only ticked up by 100-300yuan/mt, while some combed cotton yarn and open-end cotton yarn changed little.

In terms of the inventory, after cotton yarn market improved in Sept, cotton yarn mills started to consume the stockpiles gradually and currently, the inventory has stayed at low level of this year, especially conventional carded cotton yarn. Thus, there is impetus for cotton yarn to go up indeed. But why can’t it rise more than cotton?

It was mainly restricted by downstream market. From above chart, it can be seen that orders of weavers remained good in Sept-Oct when the operating rate of weavers increased and inventory reduced, but they were not optimistic to later orders. In Oct, the increase of fresh orders slowed down obviously and most weavers and spinners believed that the demand in Nov was likely to decline further. In fact, starting late Oct, cotton grey fabric trading retarded and inventory of weavers accumulated again. Amid bearish expectation, weavers did not increase the procurement of cotton yarn. In addition, grey fabric price was hard to improve and weavers just gained thin profits, so the rise of cotton yarn price was less accepted. As a result, they did not show strong willingness to restock cotton yarn despite rising cotton. For cotton yarn spinners, they mostly focused on selling and were cautious to raise price for fare of large inventory accumulation amid weakening market.

From the perspective of spot profit, it declined in Oct. At present, raw materials and open-end cotton yarn itself both stabilized and the profits changed little, conventional cotton yarn profits turned to negative from positive, and high-count cotton yarn stayed at a huge loss.

CCFGroup still holds cautious attitude to later market. Downstream orders are bearish now. For example, orders to weavers and dyeing plants have started to reduce. Without favors from policy, the orders will hardly increase. It is suggested that cotton yarn mills sell products according to the market situation and pay attention to matters of consequence like purchasing cotton as state reserves and China-US talks on trade war.