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Insight | Time: Aug 14 2019 4:03PM
How will imported yarn fare amid dual slump of cotton and exchange rate?
 
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Financial market fluctuated drastically recently. As for imported cotton yarn, it was largely affected by domestic and foreign cotton decrease and exchange rate depreciation.


On Aug 1-4, ZCE cotton futures fell more than 800yuan/mt, US cotton dropped by 5cents/lb, and Indian and Pakistani one also followed up. There are about 100,000tons of spot imported cotton yarn in China spot market, having spot and exchange rate exposure. Rapid decline in domestic and foreign cotton brought direct pressure on those without hedging, that is, domestic mills and foreign mills production costs fell rapidly, and USD port spot was fixed. As to domestic mills, based on increase of 100-200yuan/mt, cost of cotton purchase decreased by 600-700yuan/mt, which was equivalent to 600-700yuan/mt for cost of domestic cotton yarn. There is no doubt that future market will put pressure on current port spot. The fall of foreign cotton will also lead to weakening cost of forward imported yarn. Amid slack demand, forward imported yarn price may go down. As a result, the price of spot and forward yarn will bring pressure to port spot.


The second exposure was the exchange rate. Imported cotton yarn market saw less exchange rate lock. Since Aug, RMB against the US dollar depreciated from 6.88 to 7.05, with a depreciation of over 1,700 basis points and a margin of 2.5%. Settlement cost increased by 200-500yuan/mt.

  Description USD price (Unit: $/kg) RMB price after-tax (Unit: yuan/mt) not including clearance charge Tariff exchange rate 1 cost 2 exchange rate 2 cost changes
Indian yarn OEC10S 1.72 14146 1.035 6.8832 14395 7.0317 249
OEC16S 2 16400 1.035 6.8832 16698 7.0317 297
OEC21S 2.12 17317 1.035 6.8832 17685 7.0317 368
C21S for weaving 2.53 20617 1.035 6.8832 21057 7.0317 439
C32S for weaving 2.72 22147 1.035 6.8832 22619 7.0317 472
Combed C32S for knitting 2.92 23757 1.035 6.8832 24264 7.0317 507
Vietnamese yarn OEC21S contamination free 2.05 16195 1 6.8832 16539 7.0317 344
C21S contamination free 2.55 20084 1 6.8832 20512 7.0317 428
C32S for rapier 2.59 20395 1 6.8832 20830 7.0317 435
C32S for air-jet 2.63 20706 1 6.8832 21148 7.0317 441
Pakistani yarn Siro-spun 8S A grade 2.26 18004 1.01 6.8832 18387 7.0317 383
Siro-spun 10S A grade 2.28 18161 1.01 6.8832 18548 7.0317 386
C21S A grade 2.43 19340 1.01 6.8832 19751 7.0317 412
Indonesian C32S bleachable 2.73 21484 1 6.8832 21942 7.0317 458
C21S bleachable 2.53 19928 1 6.8832 20353 7.0317 425
Uzbekistani A grade C32S 2.55 21076 1.05 6.8832 21525 7.0317 449


With increasing import costs, in addition to large losses of previous cargos, new arrivals were at losses. Spinners showed willingness to quote firmly, but with decline in price of domestic yarn and forward yarn, the price of imported cotton yarn is expected to be hard to remain stable.

In addition, major cotton yarn producing countries in the world such as China, India, and Vietnam mainly had inventory, and spinners mostly cut or halt production. Supply will still be large. What is worrying is that downstream market has not seen signs of resuming, and there were still many stocks in fabric mills. Destock was not fast and capital burden was still large. China demand did not recover, and the market price was expected to drop further. Therefore, losses of spot imported cotton yarn may further deepen, and poor market operation is expected to continue.
[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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