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Research | Time: Mar 25 2021 3:24PM
Bullish cotton yarn market coming to an end?
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Cotton yarn price has surged continually since Oct 2020 due to inflation caused by easing monetary policies. In addition to cotton and cotton yarn, bulk commodity all moved up. On the other hand, downstream demand recovered gradually as the pandemic situation improved. Despite the spike, market risks accumulated gradually. Recently, as ZCE cotton futures declined, cotton yarn trading weakened obviously including both price and volume. Thus, does bullish market of cotton yarn come to an end? Will cotton yarn price move down all the way or turn upward? What are the risks and opportunities on current market?

I. Risks on cotton yarn market
1. Relatively high price of cotton yarn
2. Cotton yarn stocks in traders and weavers are higher than previous years.
3. Cotton yarn price has downward room under high profit.
4. Downstream weavers take modest orders and end-users hardly accept the high price.

II. Opportunities on cotton yarn market
1. Overseas demand recovers gradually.
2. Low product inventory in cotton yarn mills and weavers
3. Strong expectation to inflation

III. Market outlook

IV. Lowering later risks by futures

Chart 1. Cotton and cotton yarn price trends
Chart 2. Price spread of cotton grey fabric-cotton yarn-cotton
Chart 3. Cotton yarn inventory in weavers
Chart 4. Spot profits of different cotton yarn varieties
Chart 5. Spot profit of cotton grey fabric 32S
Chart 6. Orders in weavers in recent years
Chart 7. Increase in confirmed cases of Convid-19 in and out of China
Chart 8. Product inventory in cotton yarn mills and weavers
Chart 9. Monthly ending stocks of cotton yarn
Chart 10. Price spread of cotton yarn and cotton by spot and futures

Figure 1. Cotton and cotton yarn price change comparison (yuan/mt)

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