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Insight | Time: Feb 11 2020 2:31PM
Cotton yarn mills postpone production resumption due to the epidemic
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Affected by the epidemic, the governments introduced policies and required companies to postpone production, and most cotton yarn mills delayed their restart.

Hubei: as the hardest-hit area, Hubei government required the companies to resume production until Feb 13. Most cotton yarn mills reported they may restart gradually from Feb 14-15, and some mills were uncertain when to run. But due to the issues of labor and logistics, the operation is expected to recover very slowly, and the delivery of cotton yarn will also be hard amid traffic control.

Xinjiang: the epidemic situation was a little milder in Xinjiang and the government did not announce mandatory shutdown. The Spring Festival atmosphere was light in Xinjiang, especially in South Xinjiang, so some spinners did not take holiday, and they were still in normal production. Most spinners took 5-10 days holiday, and some of them have restarted as planned and some postponed production to Feb 9. The cotton yarn mills in Xinjiang were mostly invested by inland companies, but the leaders of the companies cannot return to Xinjiang due to the control on epidemic, so the sales and production were affected. On the other hand, the logistics has not recovered, and the cotton yarn mills cannot deliver goods.

Other regions: Except the cotton yarn mills in Hubei and Xinjiang, those in other regions were required to resume production after Feb 9. Some cotton yarn mills are initially expected to restart on Feb 10, and some are still uncertain. The operating rate is predicted to recover slowly after the restart.

At present, some cotton yarn mills have started to take orders, but the restart time is mostly postponed. It is still uncertain that whether workers can return to work completely and when the delivery can restore. The impacts on production and operation may sustain long.

Some cotton yarn mills have high cotton inventory and most spinners have low cotton yarn inventory.

Before Spring Festival, amid optimistic market sentiment, cotton yarn mills stocked up more cotton, but their cotton yarn inventory was low due to active selling sentiment.

The expectation to later market turns pessimistic from optimistic and cotton yarn price is likely to decline.

Before Spring Festival, cotton yarn market confidence recovered gradually and cotton yarn price increased driven by rising cotton and eased China-US trade conflict. However, during Spring Festival holiday, affected by the epidemic, ZCE cotton futures slid close to previous low, and even hit the limit down close to previous low on the first day of opening after the holiday. In addition, downstream weavers and printing and dyeing plants also delayed restart. Market participants concerned about the decrease of seasonal demand and foreign demand. Besides, they also held pessimistic to the consumption in Q1 2020. Amid slump of ZCE cotton futures and poor expectation to demand, the market was covered with gloomy sentiment.

In terms of cotton yarn price, most spinners stayed on the sidelines and did not provided offers. Some remained pre-holiday offers, but the transactions were sparse. Cotton yarn mills held expectation of price decline. On the first day after Spring Festival holiday, ZCE cotton futures moved down sharply and spot cotton also decreased nearly 1000yuan/mt against pre-holiday one. Cotton yarn did not follow the uptrend of cotton before the holiday and only increased 200-500yuan/mt in end-Dec and early Jan, so its price is predicted to decrease after the transactions recover, but the decrease will not be as much as cotton.

In conclusion, affected by the epidemic, cotton yarn mills mostly postponed production. Spinners in most regions were required to restart after Feb 9 except those in Xinjiang, and those in Hubei were required to restart after Feb 13. Some still did not confirm the restart time. Even if restart, the operating rate will recover very slowly affected by the labor and logistics issues. The time of normal trading is also uncertain. In addition, as downstream market held optimistic attitude before Spring Festival, traders and weavers stocked up a certain cotton yarn. Amid the current situation, fresh procurement will be limited even if they resume production. Some pre-holiday orders have risks of breach. Most spinners do not offer at present and some keep pre-holiday offers. Price inquiries are rarely seen. Spinners have expectation of price decline, but the decrement is uncertain.
[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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