Will a good start for cotton yarn last?

Most spinners resumed operation on Jan 27-31, and with a good attendance of returning workers the operating rate recovered rapidly. The whole market was enthusiastic to raise offers, with many raising offers by around 500yuan/mt, a few by 1,000yuan/mt, and some still waited to fulfill their pre-Festival orders first.

The price was driven up by feedstock. ZCE cotton futures rose to 15,000yuan/mt, up 500yuan/mt than when most spinners took holiday and transaction basically stagnated (Jan 16 and after). Thus the cotton yarn suppliers became even more firm to raise offers than before Spring Festival.

And market participants regained confidence by witnessing vigorous consumption in Spring Festival. Also inventory was at a low level, as suggested in the chart below, of averagely 10 days, higher than pre-Festival yet will be under pressure and lead to an increase in prices when downstream demand grows during peak season. 

In addition, cotton yarn profit remained weak. Ever since cotton yarn prices rose in Dec, spinning mills found it hard to make profit and were eager to raise offers.

Current cotton yarns deals remained scarce after offers were raised. An increase of 500yuan is expected to be acceptable to downstream mills but whether the upward trend could continue will depend on the actual amount of orders. It is said that fabric mills have received more enquiries than last year, including a larger share of foreign orders. Some imported cotton yarn sellers also reported better sales after Spring Festival. Domestic consumption gradually recovered with the Covid restriction being lifted, as can be seen from the travelling and consumption data this Spring Festival. Generally speaking, transaction will gradually return to normal level after Lantern Festival (Feb 5), and market will have to wait and see.