Bearish sentiment is heavy, how much will cotton yarn price drop further? – ChinaTexnet.com
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Bearish sentiment is heavy, how much will cotton yarn price drop further?

2022-11-15 10:10:03 CCFGroup

Though the epidemic in Xinjiang has not totally released, the falling of domestic spot cotton price and presold price has accelerated. The presold price of new cotton in November has declined to 13,700-13,900yuan/mt (in Xinjiang) while domestic spot cotton price reached more than 15,500yuan/mt. At present, the bearish sentiment is heavy in the market, and both cotton and cotton yarn mills don’t dare to buy too many cottons. After the gradual consumption of cotton stocks at previous stage, more domestic cotton yarn mills reduced or suspended production to reduce the usage of high-priced domestic cotton, and waited for low-priced cotton to be transported out of Xinjiang.

 

Yuan/mt Cotton price Cost of C32S
Seed cotton cost equals to lint cotton cost Around 13,000yuan/mt (rough weight) Around 20,900yuan/mt
Presold price of new cotton in November 13,700-13,900yuan/mt(in Xinjiang) 22,000-22,200yuan/mt
Current spot cotton price 15,400-16,000yuan/mt (domestic) 23,000-23,600yuan/mt

 

Cotton yarn prices continuously dropped as new cotton prices were low, and the current price of carded 32S was prevailed at 23,000-23,500yuan/mt. The profit of that still reached nearly 1,000yuan/mt according to the presold price of new cotton, and downstream traded prices were also discussed in accordance with new cotton presold price. On the one hand, cotton yarn mills haven’t used low-priced cotton, and when that can be commonly used is unknown. On the other hand, cotton yarns being transported out of Xinjiang were scarce, and the inventory of low-count carded yarns like carded 32S was low, so there was no large falling of yarn price temporarily. However, if the problem of Xinjiang cotton transportation be solved, new cotton procurement and sales will be normal, making it a big probability of increasing domestic cotton supply and falling cotton price. Besides, if downstream orders have no significant increase with the increase of domestic cotton yarn supply after cotton yarn being transported out of Xinjiang, cotton yarn price is bound to drop. So when is a good time to start cotton procurement, and how much space will cotton yarn price drop further?

 

Cotton yarn ex gin price could decline to around 21,000yuan/mt amid the extremist condition. However, this situation is hard to happen in short term. On the one hand, ginners were at great loss last year, and the sales are not likely to be at loss at the beginning of this season as cotton cost was at historical low level this year. New cotton price is expected to reach around 13,500yuan/mt and has some support for cotton yarn cost, and cotton yarn cost will be more than 21,700yuan/mt. On the other hand, cotton yarn inventory was not high though downstream demand was weak, and downstream fabric mills and traders both stocked up few. November is traditional off-season for textile industry, and cotton price will tend stable from December to January. If traders stock before Spring Festival, downstream demand may improve. If carded 32S price drops to the delivery price of below 22,500yuan/mt, traders and mills can begin to buy properly.

 

In terms of cotton yarn futures, 01 contract fluctuates at around 20,000yuan/mt, and the procurement price of cotton yarn futures warehouse receipt plus the premium is around 21,500yuan/mt. The spot delivered price of such quality in the market starts at 23,500yuan/mt, which is much distant from futures price. So buying cotton yarn futures warehouse receipt is also a good choice.

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