Cotton yarn sees hot market after 2021 Spring Festival holiday

During Spring Festival, ICE cotton futures broke through 90cents/lb. On the first trading day after Spring Festival holiday (Feb 11-17), ZCE cotton futures and cotton yarn futures surged successively. May contracts of ZCE cotton futures rushed and breached 16,000yuan/mt. On the back of skyrocketing cotton, cotton yarn market saw an increase of 500-1000yuan/mt in offers of cotton yarn mills. However, the market is hazy despite the rise of price.

At first, most downstream weavers will restart from Feb 21, so the transactions of cotton yarn are sparse in spite of price rise. Weavers did not see obvious increase in new orders during the holiday and they still focused on delivering pre-holiday orders.

On the other hand, traders restocked at a large amount before Spring Festival holiday. Their offers were adjusted up due to the rise of ZCE cotton futures, but no transaction was done. If the market does not perform as expected in Mar, they may quicken the sales, pressuring the price.

From the chart below, cotton yarn mills took holiday later and restarted earlier in 2021 than previous years. The operating rate recovered fast. By comparison according to Chinese lunar calendar, the operating rate on the eighth day of Chinese Lunar Year was about 10% higher in 2021 than that in 2018 and 2019.

The inventory was also much lower than previous years. If the peak season comes as expected in Mar-Apr, tight supply and hot demand of cotton yarn will sustain.

In general, cotton yarn market welcomes a good start after Spring Festival holiday with price up 500-1000yuan/mt, but few trades are done. It is expected to see more transactions until Feb 26, but it is still uncertain whether orders could achieve expectation to peak season. In short run, traded price of cotton yarn is likely to move up compared with that before the holiday supported by the cost and tight supply. If the orders do not meet the expectation, the increase in price may be discounted. There is still large uncertainty in traders.