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Insight | Time: Nov 27 2019 10:05AM
Cotton yarn market forges ahead amid divergences
 
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Cotton textile industry has experienced a tough year in 2019 attacked by trade conflict and soft domestic demand. As for cotton yarn, it hardly survived under the cost pressure brought by the rise of cotton price and inadequate orders due to weakening downstream demand. However, cotton yarn trading performed better in late Nov than that in the same period of last year and has not shown signs of weakness.

1. Sales
(1) Conventional cotton yarn keeps sold smoothly.
In early Nov, pushed up by the strength of cotton price, cotton yarn mills saw higher cost pressure. Based on good sales, cotton yarn prices were partly revised up with carded one up about 100-300yuan/mt. In terms of the actual transactions, conventional carded cotton yarn saw smooth sales, good demand and even tight supply and the price tended stable. High-grade carded 32S was mainly traded at 20,500-21,000yuan/mt and high-grade carded 40S at 21,500yuan/mt. The sales of combed cotton yarn were not as good as that of carded one. Its inventory also stayed high. Combed 32S for knitting was mainly traded at 23,500yuan/mt and combed 40S for knitting at 24,500yuan/mt with some discounts.

(2) Open-end cotton yarn weakens somewhat.
Open-end cotton yarn weakened obviously. The sales reduced largely, but the price kept stable due to low inventory. Some discounts were seen. At present, OEC10S for air-jet was mainly offered at 14,500yuan/mt, OEC21S for air-jet at 16,000-16,300yuan/mt and OEC32S for air-jet at 18,000-18,500yuan/mt.

(3) High-count cotton yarn sees healthy demand.
High-count cotton yarn saw healthy demand due to seasonal change, especially compact-spun combed 60S remained sold well with stable-to-strong price. Other high-count cotton yarn seemed mild and the prices stayed flat on the whole. Currently compact-spun combed 60S was mainly traded at 27,500-28,000yuan/mt, up 1,000yuan/mt from previous period when cotton yarn mills sold with discounts due to high inventory, but the inventory has declined to low level.

2. Profit
Recently, spot cotton yarn price was weaker than cotton and cotton yarn mills faced large cost pressure. Take carded 32S as an example. The spot profit of carded 32S was at around -100yuan/mt.



3. Operating rate and inventory
As some varieties softened, the inventory of cotton yarn mills stopped falling and tended stable, and it has large potential to inch up later. At present, it was averaged at 21.7 days, a low level.

Overall operating rate kept steady at about 47.9%. It may decline gradually as orders reduce and the end of the year is coming.



4. Restocking of raw material
The cotton comes to the market intensively worldwide. In short run, the supply will be adequate and cotton price has downward room. In fact, even if restricted by downstream demand and capital pressure, many cotton yarn mills start to replenish cotton at a small amount for next year’s production. Currently, the cotton in medium cotton yarn mills can be scheduled for about one month and some large cotton yarn mills can keep the production for 1.5-3 months.



5. The mindset of downstream weavers
Trading sentiment of cotton grey fabric sustained poor now. The orders from local market and overseas markets were inadequate and the inventory increased slightly. Orders of weavers were mainly from regular customers. Homogeneous competition was also fierce while differential products performed well. With the year coming to an end, many weavers were burdened by repayment and wages of workers, and most of them thought cotton yarn hard to move up in short run, so they kept purchasing cotton yarn by small orders. Therefore, downstream demand cannot lend support to cotton yarn.

In conclusion, cotton yarn trading sustains stable appearance and has not shown obvious weakness since Nov, but the divergences among varieties are apparent. As for later market, cotton yarn price is expected to keep stable with regional decrease and the divergences will continue amid lack of confidence.
[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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