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Insight | Time: Aug 9 2019 2:19PM
What about the cotton yarn after slump of ZCE cotton futures
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The US president Trump tweeted last week that he would impose a 10% tariff on $300 billion in Chinese imports from Sep 1, making a big splash in the market, with immediate plummet of ZCE cotton futures and cotton yarn futures, sharp depreciation of RMB and surge of gold market. However, spot cotton yarn market seems quiet for the tariff this time as most mills say “they are used to it”.

1. Trading on cotton yarn market turns dull obviously.
Along with the slump of cotton price, trading on cotton yarn market turned dull obviously and price inquiries are reported to reduce drastically. At first, many downstream weavers take high-temperature holidays due to slack season for textile industry and their demand for cotton yarn is sparse under high inventory. On the other hand, after the slump of cotton, market players mostly thought cotton yarn price would also slide, so they stayed on the sidelines to procure. In recent days, inventory of cotton yarn mills rises a lot and the sales of cotton yarn are plain except for tolerable carded 32S and 40S.

2. Offers of cotton yarn mills mostly keep stable and trades are done with discussions.
Different from previous period, the slump of cotton this time did not drag down cotton yarn price much. At present, cotton yarn offers mostly stay flat with partly down by 200-300yuan/mt and discussions are available in trading. Looking the trading price, it drops in deed, but the slide is more due to sustained weakness rather than following cotton trend.

The reasons behind mild decrease of cotton yarn are as follows.

Firstly, the long-term losses weaken spinners’ willingness to lower prices.

From below chart, it can be seen that cotton yarn market has suffered losses for long. In particular, the compact-spun combed 60S has seen losses of 1,300yuan/mt at most from profits of about 1,000yuan/mt and it is still at a loss now. Conventional cotton yarn performs a bit better and the profits have turned positive. In fact, during May to Jun, cotton yarn mills kept seeing losses of 2,000yuan/mt or higher. Although the spot profit now is positive, most cotton yarn mills are still using high-priced cotton and experience losses in actual production. As a result, cotton yarn mills are reluctant to lower prices.

Secondly, the supply of cotton yarn reduces as many spinners take holidays and cut production.

The demand for cotton yarn reduces, but the supply also reduces in the meantime.

Cotton yarn mills seize the chance to take high-temperature holidays and increasingly cut and suspend production amid weak market and continual losses, and lower operating rate to low level. Some cotton yarn mills would cut or suspend production rather than revise down prices to suffer greater losses.
As a whole, actual transactions of cotton yarn mills decrease compared with last week despite little changed offers. After Trump’s announcement, market players get more pessimistic to later market. They think the peak season in Sep and Oct may not come as expected and cotton yarn price is more likely to decline. In addition, cotton yarn mills may still focus on selling amid the high inventory, especially combed and high-count ones. Cotton yarn price is expected to have downward room.
[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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