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Insight | Time: May 18 2020 3:19PM
What's the direction for cotton yarn market after missing peak season?
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Cotton yarn market’s traditional peak season-Gold Mar and Silver Apr-has passed in depression. Entering May, cotton yarn market does not deteriorate. The stable orders from China local market and a few export orders bring it a little luster. However, the seriously-hit consumption confidence in overseas market needs a long time to restore. With traditional dull season coming, where will cotton yarn market go?

1. Cotton yarn trading quickens a little.
After May Day holiday, out of expectation, cotton yarn sales quickened, which gave cotton yarn mills an opportunity to catch a break, even though the trading volume was still small. It was heard that the buying was mainly from traders which stocked up at a small amount previously with stockpiles to be consumed up soon. At present, cotton yarn price stayed low and the lockdown in European and American countries eased gradually, increasingly the speculation sentiment. Relatively, weavers were cautious. They mostly purchased cotton yarn on a hand-to-mouth bases as the orders did not recover as expected.

2. Cotton yarn price keeps soft.
Overall trading on cotton yarn market was tolerable but the price was still in weak territory. Downstream buyers made efforts to force prices down. Conventional cotton yarn seemed relatively stable with carded 32S for air-jet at 18,500-19,000yuan/mt and carded 40S for air-jet at 19,500-20,000yuan/mt. Sales of open-end cotton yarn turned better slightly but the price stayed bearish with OEC21S for air-jet at 14,000yuan/mt, and the mills increasingly cut or suspended production. High-count cotton yarn trading remained slack due to the impacts of export orders. The transactions were scarce after the price declined. Compact-spun combed 60S for home textiles prevailed at 26,500yuan/mt.

3. Cotton yarn inventory inches down.
With sales quickening, cotton yarn inventory reduced, but still at high level on the whole. It is also likely to move up later. Currently it averaged at about 31 days, reaching years’ high.

4. The profit of cotton yarn is poor in general.
Cotton textile market was still depressed now. Cotton yarn price was much weaker than cotton price, so cotton yarn mills witnessed poor profit. Take carded 32S as an example. Cotton yarn mills currently suffered a loss of 400yuan/mt by purchasing for immediate production, while by using the cotton purchased one month ago, they could gain profit of 700yuan/mt. The profits turned worse obviously. (The mills gain different actual profits according to different cotton usage.)

5. The recovery of downstream orders still needs time.
Orders from China local market were heard to improve. In Lanxi and Guangzhou, some weavers received a bit more orders which can be scheduled to end-May. Export orders also showed a bit better appearance. Some export weavers reported that the delivery dates of cargos delayed to be delivered or produced were confirmed. However, the coronavirus pandemic has severely hit the consumption and demand, and it may take a long time to restore. Therefore, it is still uncertain how the overall orders will resume.

In conclusion, cotton yarn price moved much weaker than cotton price and amid losses, most cotton yarn mills are reluctant to lower prices for underselling. On the other hand, downstream demand stays bearish and it will be hard to improve obviously in short run. Inventory pressure on cotton yarn mills still exists, adding the large stocks of imported cotton yarn. As a consequence, cotton yarn price will be easy to fall instead of rising and remain weak.

[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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