Cotton yarn prices fall under the pressure of lowering demand and cost

ZCE cotton futures plunged in fortnight, with cotton yarn futures 2305 falling to near 14,000yuan/mt and high-level futures falling by near 1,200yuan/mt. Cotton yarn sales were gradually reduced from last week when downstream mills have just finished first wave of replenishment after Spring Festival and would not make another procurement until new orders increased significantly. On the other hand, market confidence was diminished and many were now wait and see after ZCE cotton futures dropped. Following the decline in sales and cotton prices, cotton yarn transaction prices fell by 200-300yuan/mt last weekend, slower than cotton. Cotton yarn prices are expected to drop in the short term though a sharp decrease is unlikely.

Unsatisfying profit and low inventory

Cotton yarn inventory began to accumulate this week but in absolute terms it was still at a low level. Weaving mills were unwilling to lower prices at a point when they’ve began to make profit. 

Market still hold expectation despite of the risk of plunging cotton prices

The growth of new orders after Spring Festival failed to reach expectation but market remained positive since there’s still some time before the traditional peak season in Mar and Apr. According to our research, many viewed recent fall of 13,600-14,000yuan/mt in cotton as a short-term relatively low level. Unless market expectation changed, cotton yarn prices are unlikely to fall sharply.

Whether the prices would rebound depends on the growth of orders. After Spring Festival, domestic apparel market in Lanxi and Guangdong performed well while the exporter in Shaoxing and Ningbo, textile market in Nantong showed ordinary sales. The outlook of domestic apparel market is positive but for textile market it may not be easy to seek growth of export orders, though there might be some new orders from hotels. Market is now waiting for cotton price to stabilize and the demand may recover in Mar and Apr. But without the support of export orders, a booming demand is less expected.