Will the strength of cotton yarn in May sustain?

Cotton yarn market tends strong in May with the price further moving up bolstered by upstream raw materials and improved downstream demand, which is opposite with Apr’s expectation. Even if ZCE cotton futures slumped recently and downstream procurement slowed down obviously, the price of cotton yarn has not decreased.

Cotton yarn prices moved up in May compared with mid-Apr, but the increases were divergent. Open-end cotton yarn remained weak. It was hard to increase largely despite previous slight strength. Conventional cotton yarn prices mostly increased by 1,000-1,500yuan/mt. Cotton yarn 40S moved up much more than 32S and the price spread between them widened to about 1,500yuan/mt from 1,000yuan/mt. Compact-spun combed 60S was also sold better with price up 1,000-1,500yuan/mt. Market players mostly hold bullish attitude to cotton price, thus will cotton yarn price improve further?

1. Cotton yarn inventory in cotton yarn mills stays at record low.

From Mar to the first half of Apr, cotton yarn sales kept poor and the inventory started to accumulate, but it was still at a low level. From late Apr, cotton and cotton yarn prices improved and the transactions on the market turned better, reducing inventory of cotton yarn mills again. At present, it reached record low with many mills no inventory and some arranging orders. Low inventory ensures cotton yarn mills to adjust up prices without hesitation when prices of raw materials jump.

2. Forward imported cotton yarn price is lower than spot one.

Forward price of imported cotton yarn was much lower than spot one, especially Vietnamese one and Pakistani one of which the price spread between forward and spot reached over 1,000yuan/mt. Indian cotton yarn saw no gap between forward and spot one, but the ordering was cautious with concerns on the impact of the pandemic in India on delivery and shipment. As a whole, forward imported cotton yarn price moved high and Chinese orders were limited. May arrivals of imported cotton yarn will reduce.

3. Downstream orders improve, but the prices of the products hardly increase.

According to CCFGroup, downstream weavers were tolerable. The orders increased from early May and could mostly last to end-May. The orders of home textile market in Nantong can last to Jun. Traders of cotton grey fabric restocked at with a certain speculation. However, cotton grey fabric price is difficult to move up and the profit of weavers was compressed. At present, the profits hovered around breakeven line.

Overall, cotton yarn market fundamentals now run well underpinned by raw materials and downstream demand. Cotton yarn price is expected to keep strong in short run amid low inventory and reduced arrivals of imported cotton yarn. However, it also faces increased barriers to climb up. Cotton grey fabric is hard to improve. Downstream orders were mediocre and the traders purchased speculatively amid expectation to inflation and strong ZCE cotton futures, which pressure cotton grey fabric price. In the meantime, macro risks were high. ZCE cotton futures slumped and cotton reserves sales have not been decided yet. In addition, slack season is coming.