Cotton yarn hardly resist under continual fall of ZCE cotton futures

ZCE cotton futures fiercely fluctuated this week. On Monday, it surged and cotton yarn offers of the spinners moved up further by 500-1,000yuan/mt. Then it decreased but cotton yarn sales sustained on Tuesday and Wednesday and market confidence was not affected obviously. Cotton yarn price kept firm and the trades at higher price were done successively. ZCE cotton futures continued to slump on Thursday and the decrease reached 1,000yuan/mt by Friday from previous high. In the same time, cotton yarn sales started to slow down obviously. However, the price has not been widely adjusted down. Most mills held orders at hand and many of them had orders till Apr-May. They preferred to stay on the sidelines and stabilized offers. But amid stagnant downstream procurement, strong expectation to revise down prices existed among the mills especially those which had scarce orders. On the other hand, some traders were heard to undersell for destocking.

Although cotton yarn price was not adjusted down intensively, the market was filled with concerns about price fall. What else weaken cotton yarn price except the decline of ZCE cotton futures?

1. Cotton yarn inventory in traders becomes uncertain bomb on the market.
Since Dec 2020, cotton yarn price moved all the way up. The reasons behind were not only the motivation of raw materials and end-user consumption but also the speculation of traders. In three months, traders purchased more and sold less, resulting in high inventory which may affect the market more even if cotton yarn mills had low inventory and adequate orders to be scheduled. Spinners now pay much attention to the underselling time of traders.

2. High price of cotton yarn

Compared with cotton, cotton yarn price has increased more since Oct 2020, restoring the profits of cotton yarn mills largely. Conventional cotton yarn gained profits 4,000yuan/mt more to about 1,500-2,000yuan/mt and combed 60S obtained 9,000yuan/mt more to about 5,000yuan/mt, which was rarely seen before. The return of price spread between cotton yarn and cotton is just a matter of time, but the continual fall of cotton price now indeed triggers concerns on the market.

3. Downstream market price rises, but meets barrier to improve further.
Cotton grey fabric price increased by about 0.6yuan/m after the holiday, nearly covering the rise of cotton yarn, but when it comes to the spike of cotton yarn before the holiday, the increase in cotton grey fabric was limited and weavers hardly accepted high-priced raw materials on poor profit. In addition, orders on the market were divergent with knitted fabric and home textiles better yet woven apparel mediocre.　

Comprehensively, cotton yarn market has not seen price fall widely, but the downward expectation exists. Except the decline of ZCE cotton futures, heavier concerns on the underselling of traders spread on the market. In addition, the market stays in peak season now, but downstream orders are still worse than expected, and traders and downstream weavers both become less possible to buy cotton yarn at a large amount. As things stand, cotton yarn price is likely to retreat later.