A “but” in the good start of cotton yarn

Cotton yarn mills have resumed production successively with Spring Festival holiday finished. During the holiday, foreign cotton markets surged and accordingly, ZCE cotton futures soared at the first trading day after the holiday with CF05 contracts once breaking through 22,200yuan/mt at the highest. Seeing the hot ZCE cotton futures, cotton yarn market embraces a good start too.

From above chart, cotton yarn mills had a longer holiday this year. They restarted intensively in Feb 8-10, with some later.

According to CCFGroup’s survey, cotton yarn mills show strong willingness to raise prices and the offers have increased about 1,000yuan/mt from pre-holiday ones. Why does cotton yarn price increase so much? Before Spring Festival holiday, cotton price cumulatively increased by about 1,500yuan/mt from end-Nov’s low, while cotton yarn price only had an increase of 500-1,000yuan/mt. Under such great losses, cotton yarn mills planned to raise post-holiday offers by 500yuan/mt at least. After the holiday, ZCE cotton futures opened high, which further enhanced the determination of cotton yarn mills to adjust up the prices by 1,000yuan/mt.

However, there were few trades done as most downstream plants did not restart until Feb 10 or later and on the other hand, weavers do not hold adequate post-holiday orders at hand and will prefer to stand on the sidelines with concerns about the risks of high-priced cotton. For cotton yarn mills, most of them have confidence on the rise of 500yuan/mt in actual trading price, but further increase still relies on downstream orders and cotton price trend. In general, orders will improve in the second half of Mar, about half a month later, so it is hard for cotton yarn price to move up under high inventory.