Improvement in pure cotton yarn trading: is the peak season here?

As the traditional peak season approaches, the pure cotton yarn market has gradually started to recover in recent weeks.

Increased transaction volume and inventory reduction

Recently, there has been a seasonal increase in downstream orders, leading to a rise in operating rates at weaving mills. The operating rate in the Guangdong market began to rise gradually in early July, and other markets have also seen an increase in operating rates since last week. With the rise in just-in-time procurement from weaving mills, transactions in the pure cotton yarn market have improved over the past two weeks, and spinning mills have started to reduce their inventory.

Slight recovery in operating rates, but still low

On one hand, transactions have improved, and on the other hand, falling cotton prices have significantly improved the profitability of spinning mills. Spinning mills in inland areas have turned cash flow positive, boosting production enthusiasm, and some mills have increased their operating rates. However, due to a lack of market confidence and still-hot weather, the increase in operating rates has been slow, and overall production levels remain low.

Prices remain weak

Cotton yarn prices continue to be weak, with spinning mills primarily offering discounts to move inventory. Although demand has improved, downstream purchases remain focused on just-in-time needs, with speculative demand being weak. This has led to a less pronounced recovery in transactions compared to previous years. Given the poor outlook for terminal consumption, market confidence in the sustainability of this trend is low. Additionally, while cotton prices have dropped significantly, the decline in cotton yarn prices has been smaller, and inventory levels at some large spinning mills remain high. As a result, there is still concern in the market about further declines in yarn prices.

While we do not have strong expectations for demand in the second half of the year given the current macroeconomic environment, seasonal demand is expected to manifest. Moreover, current cotton yarn inventories at downstream weaving mills and traders are relatively low, suggesting that transactions may continue to improve. In terms of prices, while overall supply of pure cotton yarn remains relatively ample, inventory has already begun to decrease. Uncertainty around cotton prices remains significant, but the price range below 13,000-13,500 yuan is already limited. More and more market participants are expressing interest in bottom-fishing or are no longer highly bearish. If cotton prices can stabilize, the bottom for cotton yarn prices may not be far off.