Cotton yarn inventory in mills slips fast amid the improvement of trades

Cotton yarn trading sentiment improved with the release of epidemic control and continuous firm ZCE cotton futures after entering into Dec. Cotton yarn sales of mills accelerated obviously compared to previous stage, and inventory reduced fast. Some medium and small-scaled mills have already had order arrangement. It can be seen from the chart below that the inventory of cotton yarn mills has reduced to around half a month. The inventory reduced about 15days within a week, and the slip rate of inventory was as fast as that in Oct 2021. The reason for the reduction of inventory is not only the increase of downstream demand. 

1. Confidence recovered in the market amid the release of epidemic control, and traders were active to restock  

The trading sentiment changed obviously after the release of epidemic control since early-Dec. Cotton textile enterprises called for having holiday in advance in Nov, but now most mills were endeavor to produce, and the voice of being on holiday in advance reduced apparently mainly as market participants’ expectation on Chinese market after Spring Festival has changed from pessimistic to optimistic amid the release of policy. As traders and fabric mills stocked few, they were active to stock up for peak season after Spring Festival. The recovery of Guangdong Zhongda market also accelerated. However, end orders and orders in fabric mills actually didn’t have large improvement, which was distant from cotton yarn trading sentiment now. The procurement recently was still mostly for speculative replenishment, and traders were of higher proportion to buy. According to CCF Group, cotton yarn inventory reduced 18.9days compared with early-Dec while cotton yarn inventory in fabric mills only rose 7.5days.

2. The operating rate of cotton yarn mills was hard to move up as supply was inhibited

Cotton yarn mills reflected that much more workers were infected by epidemic since the second half of last week due to the release of epidemic control. The infection proportion reached low level at 10%-20% while reached high point at 50% or even higher. Workers couldn’t all be in operation, making the operating rate hard to improve and gradually slip, and some mills began to give holiday. It can be seen from the char below that the operating rate moved up obviously after the release of epidemic control in a short period of time, but began to slip when it hasn’t recovered to the high level at previous stage. The operating rate this week is expected to move down further, and the second reason for fast cotton yarn destocking was because supply couldn’t increase as cotton yarn operating rate was hard to move up.

The inventory of cotton yarn mills reduced fast, and cotton yarn prices mostly rose by 300-500yuan/mt, and downstream buyers gradually accepted that. Though cotton yarn sales improved with rising price, but profit didn’t have large improvement. Now the loss of conventional varieties still reached 500-1,000yuan/mt.

The improvement of this turn of market was mainly due to downstream stocking in advance, and the expectation on the demand recovery after Spring Festival still maintained. Besides, the operating rate of cotton yarn mills kept slipping with the coming of Spring Festival and fast spread of epidemic. Cotton yarn prices are expected to keep running in firmness.