Will cotton yarn fail to meet peak season?

In three weeks after Spring Festival holiday, ZCE cotton futures opened high but then moved down. Cotton yarn is the same. Cotton yarn price was adjusted up greatly as soon as the holiday finished, but there was little buying. By now, market confidence has been depressed as cotton yarn price declined, even lower than pre-holiday one. What’s the reason of the market worse than expected and where will it go?

The factors influencing cotton yarn market currently are demand and cotton.

In terms of the demand, before and after Spring Festival holiday, downstream demand remained bearish. The orders placed to the weavers reached at year’s low. What is different from pre-holiday market is the weaker expectation to later peak season. That is, market confidence is continuously faltering amid bearish orders. The lack of orders and weakening expectation fails to cheer up downstream buying.

In terms of cotton, it kept rising before and after Spring Festival. Driven by strong ICE cotton futures and Indian cotton, market participants held bullish attitude to ZCE cotton futures. On the other hand, pre-holiday restocking of cotton was also driven by the optimistic expectation to cotton. Therefore, cotton yarn price moved up by 1000-1500yuan/mt right after the holiday. However, ZCE cotton futures opened high yet moved downward then gradually, and it was further hit recently by Russia-Ukraine conflict. Though cotton still stays at a high level, the fall from high still causes market participants to avoid risks.

In conclusion, inadequate orders and the fall of cotton exert dual hit on cotton yarn market from cost and demand sides, and it causes the dull transactions and decline of prices in recent half month. Fortunately, peak season has not come actually and there is still some anticipation. So some spinners persist with their strong offers. Then will the market turn better in Mar to Apr?

According to CCFGroup’s observation, the demand has not shown uptrend, but according years’ market development, orders come and go quickly, so it is too early to say the peak season will meet dull market. In Mar to Apr, seasonal demand is expected to show up. However, the high inventory in cotton textile industry chain is the biggest problem, so when end-user demand improves, the product inventory will be consumed at first. If the demand increases largely, the market may be activated by purchasing of raw materials; if not, cotton yarn price will be more difficult to rise, and under great losses, cotton yarn mills may choose cut or suspend production.