Cotton yarn price drops despite peak season

In contrast to its usual status as a peak season for the textile industry, this September has been underwhelming. The main reasons behind this are weak downstream orders and sluggish consumer demand. Additionally, the drop in cotton prices has played a role, with cotton yarn prices also slightly decreasing by 100-200yuan/mt. In some regions, more traders and spinners begin to sell goods at low prices.

Data tracking shows a decreased in downstream orders, with spinners' operating rates also declining. While the Nantong market has experienced reduced transaction volumes, the decline in downstream operating rates is not yet significant. In Guangdong, operating rates have not reached levels seen earlier this year and even start to decline. As shown in the chart below, spinners' operating rates began recovering in early August, leading to a slight increase in cotton yarn transactions, slightly earlier than previous years. This is driven by factors like tight cotton supply, production cuts, and optimistic expectations of an early harvest. The market's bullish outlook on cotton prices result in early placement of downstream orders, contributing to the moderate state of orders in Septembers. Another significant factor is the decline in actual consumer demand due to economic pressure, alongside decreased speculative demand because of high trader inventories and fluctuating cotton prices, while export orders remain weak.

Market players hold a prudent attitude. ZCE cotton futures experience a decline since early September due to regulatory policies like the increase in cotton stockpile release to 20kt, potential extensions of the release period, and stricter control over cotton purchase fund for the upcoming fiscal year. This, coupled with subdued downstream demand, has diminished optimism among market players, leading spinners to reduce stockpiling and favor smaller immediate purchases.

Looking ahead, we believes that new cotton has not yet seen concentrated purchases, with expected prices ranging 7.5-8.5yuan/kg, yet uncertainty remains. Xinjiang's reduced cotton production and an increasing number of ginners make a significant drop in prices unlikely. In the short term, the market may exhibit a robust trend, but prospects for sustained long-term growth appear unfavorable. Additionally, the substantial inventory of cotton yarn puts upward pressure on prices, unless the peak season generates strong demand. At present, it appears advisable for textile enterprises to consider selling at reasonable prices. Nevertheless, orders of the Double Eleven shopping festival remain uncertain and warrant continued observation.