Will cotton yarn market embrace good start after Spring Festival

ZCE cotton futures once nosedived below 15,000yuan/mt, down by about 800yuan/mt from Jan’s high. With Spring Festival approaching, the market cooled down gradually and the trades of cotton yarn reduced with some higher prices adjusted down. Most cotton yarn mills will not change their prices much before Spring Festival. As things stand, will the market welcome a good beginning after Spring Festival?

1. Downstream participants take holiday in advance and post-holiday orders have not been confirmed.
Contrary to booming cotton yarn, downstream grey fabric market is relatively weak. The weavers holding orders are still in production. It is heard that the orders of knitted fabric in Guangdong could sustain to end-Mar while those of woven fabric could not sustain long. However, most small and medium weavers without many orders have taken holiday, about 7-10 days earlier than previous years. Therefore, despite bullish expectation to post-holiday market, the orders have not been confirmed in fact and market performance in peak season in Mar-Apr is still in doubt.

2. Low inventory of cotton yarn mills supports cotton yarn price.
Upon coming Spring Festival and fall of ZCE cotton futures, cotton yarn market weakens gradually. A few cotton yarn mills start to accumulate inventory. Most mills still hold orders which can sustain 0.5-1 months, some 2-3 months. Overall low inventory makes cotton yarn mills reluctant to adjust down prices.

3. Traders with high stocks have potential to sell off.
According to CCFGroup, hot sales of cotton yarn mills mainly benefited from traders since Dec and the stocks in warehouses were reflected at high level. At present, conventional cotton yarn price has risen by about 3,000yuan/mt compared with that in early Dec, while some varieties like 60S move up by about 6,000yuan/mt. With low cost, traders may sell at lower price to realize profit if the market is not as good as expected, which may drag down overall cotton yarn price.　

4. High profit provides discount room for cotton yarn mills.
Cotton yarn profit stays in positive territory. Theoretical profit of carded 32S was about 1,000yuan/mt and compact-spun combed 60S reached 3,500yuan/mt, much higher than previous years. If the market continues the weakness, cotton yarn price has potential to move down.

In conclusion, there are many uncertainties after Spring Festival, especially in downstream orders. For cotton yarn market, unfavorable factors such as high stocks of traders and higher price compared with cotton price and favorable factors like low inventory of cotton yarn mills both exist. If orders increase during and after Spring Festival holiday, there is no doubt that cotton yarn price will increase and weavers and small traders will have restocking demand, but with low inventory in the mills, tight supply will sustain; if downstream demand rises slowly, cotton yarn price will also be difficult to fall as traders will stay on the sidelines and observe for some time and cotton yarn mills will not sell off at once with low inventory at hand. Now market participants are waiting for the peak season in Mar-Apr. Cotton yarn price may not fall unless the market keeps weak until Mar. As a whole, cotton yarn price is likely to rise after Spring Festival holiday.