Cotton rebounds, cotton greige fabric market may remain weak

In May, influenced by market sentiment, ZCE cotton futures index saw a significant decline, followed by a rebound in the second half of the month. Spot prices remained weak, downstream demand softened, and the off-season continued, causing heightened tension in the cotton textile industry.

I. Divergence in raw material prices

A. Cotton

Since mid-April, cotton futures have been fluctuating downward. During the decline, cotton spot trading was active, and spot basis continued to rise. This was primarily due to a reduction in cotton production in the 2023/24 season and reluctance to sell a large amount of lint cotton in 2024.

B. Cotton Yarn

Since April, pure cotton yarn prices have continued to fall. The price drop for C40S and C60S has been relatively small, while C32S saw a larger decrease due to selloff of major spinning mills. In May, the downstream market continued to weaken, with increased inventory in spinning mills, higher than the same period last year, putting pressure on prices. With the recent decline in the cotton futures index, cotton yarn prices have generally been on a downward trend.

II. Downstream off-season pressure

Despite of the declining raw material prices, downstream weaving mills showed low buying interest. In the first half of May, the market continued to weaken, with less inquiries from the customers. Weaving mills accumulated inventory and faced production cuts.

Currently, weaving mills faced significant pressure, with falling finished product prices compressing profits. Facing weak downstream demand, weaving mills are considering to reduce production. Some factories cannot halt production and continue operating to maintain employment, even without new orders, focusing on producing conventional varieties.

Conclusion

In the first half of May, the all-cotton fabric market remained weak. Despite declining costs, grey fabric prices were adjusted downward, but the transaction remained dull, leading to losses for weaving mills in May and inventory accumulation. Under a strategy of prioritizing inventory control, the price of grey fabric may continue to shift downward in May, making sales even more difficult and leading to further production cuts in weaving mills.