Cotton-yarn price spread widens, impacting mainland spinners' profitability

The price spread between cotton and cotton yarn has entered a new phase of fluctuation

Since mid-April, ZCE cotton futures fell sharply by nearly 1,700yuan/mt, while spot cotton prices dropped by about 1,000yuan/mt. According to CCF Group, cotton yarn prices declined even less, by under 700yuan/mt. As a result, the price spread between cotton and cotton yarn widened.

Since the second half of 2023, the spot price spread between cotton and cotton yarn fluctuated between 5,500-6,500yuan/mt, rarely exceeding 7,000yuan/mt. The futures price spread was even narrower, mostly within 5,000-6,000yuan/mt. Recently, due to a sharp decline in ZCE cotton futures, the futures price spread expand rapidly from around 4,900yuan/mt on April 30 to 6,000yuan/mt (May 17), an increase of 1,100yuan/mt. While the spot price spread remain steady around 6,000yuan/mt.

So, how have spinners' profits been affected by the recent declines?

From late 2022 to Q1 2023, both mainland and Xinjiang spinners had decent cash flow, but it declined gradually afterward, turning negative for mainland spinners in the latter half of the year. Despite some improvement compared to late 2023, mainland spinners' cash flow remains unsatisfactory this year. Meanwhile, Spinners in Xinjiang maintain a cash flow exceeding 1,000yuan/mt, significantly outperforming the mainland. This discrepancy has weakened the competitiveness of mainland spinners, prompting significant production cuts, shutdowns, and shifts in product lines, which are more extensive this year. This ongoing transformation signals a continued move away from cotton in mainland China, expected to persist into the next year.