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Will peak season for cotton yarn come with small improvement seen?

2020-08-26 09:03:52 CCFGroup

With improvement seen on cotton yarn market, especially in Guangdong, will cotton yarn embrace hot trades in “Golden Sep” and will its price increase?

1. Product inventory in cotton yarn mills reduces amid low run rate.
With small recovery of downstream demand, cotton yarn was sold more quickly. Sales of conventional carded cotton yarn, compact-spun combed 60-80S and some open-end cotton yarn were reported to turn better. In terms of operating rate, the mills which had been shut down due to COVID-19 in Xinjiang gradually restarted, but many inland cotton yarn mills were still in production cuts or suspension. So overall inventory declined obviously amid low run rate and production.

2. Cotton yarn mills suffer huge losses.
Cotton yarn price is hard to increase despite improvement in trades. Some mills with low inventory were heard to raise prices, but the trades were hard to be done. Overall cotton yarn price stayed stable. However, cotton price kept strong, so cotton yarn mills were still at a large loss.

From the chart above, no matter using state reserved cotton or market cotton, and no matter how many cotton stocks, cotton yarn mills tolerated losses of at least 1,000yuan/mt. Thus, the slight improvement could barely cheer up cotton yarn mills to produce, so they kept operating rate low.

How about market outlook?

In terms of cotton, it is likely to tend strong with coming new cotton, gradually improved downstream market and adequate market capital. For cotton yarn, it sees support from downstream rigid demand during peak season. Although stocks of Chinese cotton yarn and imported cotton yarn stay high, they will further decline as the market recovers. In addition, cotton yarn mills hold strong willingness to raise prices under serious losses. As a result, cotton yarn price is expected to be boosted by cotton. However, cotton yarn export is still hindered due to severe pandemic outside China. Coupled with slow recovery of end-user consumption and limited increase in orders, cotton yarn market may not be as hot as that in previous years. In short and medium term, cotton yarn price is expected to keep stable to strong.