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Cotton yarn still profitable in Nov despite weakness

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 Entering Nov, under the pessimistic atmosphere, cotton yarn market continues the slackness, and seems slacker than in Oct. Almost no variety survives.


1. Cotton yarn price steps downward continuously.


With poor downstream demand and soft cotton price, cotton yarn market has started the downtrend since Sep. From the perspective of price index, cotton yarn carded 32S moved down by 735yuan/mt from Sep’s high, while cotton price slid more, by 1175yuan/mt from Sep. The decrease of cotton yarn price is thought owing to sluggish downstream demand which resulted in hiking inventory in cotton yarn mills. With pessimistic attitude to market demand outlook, cotton yarn mills prefer to sell at lower price and purchase cotton cautiously, which also depresses cotton demand. With intensive cotton supply on the market, cotton price accelerates to decline.

2. The further slide of imported cotton yarn weighs on domestic one.


Stocks of imported cotton yarn in ports are at a large amount, but the sales are stagnant. Under increasing capital pressure, traders undersell continuously. At present, price of Indian carded 32S for air-jet moved down to 22,600yuan/mt, and the price spread with domestic one reached 900yuan/mt. Amid sluggish sales, imported cotton yarn price may tick down further without cost support, and the price gap with domestic one will widen further. Low-priced imported cotton yarn brings high pressure to domestic market.

3. Profits keep in range bound.


Overall profit of cotton yarn mills is tolerable in 2018. During state reserved cotton auction, spinners enjoyed high profits. Since Oct, calculated on spot cotton price, the profit narrowed compared with that during cotton auction, but still tolerable, fluctuating within 200-800yuan/mt. Despite weak trading sentiment, most spinners can profit.

In short run, cotton yarn market will remain weak and now is waiting for the result of China-US talks on the trade war. If China and US reach comprise, the pessimistic atmosphere on the market will be eased and spinners may restock before Spring Festival. But if the trade war escalates further, the market may keep dull or even weaker. In addition, China-US trade war also has impacts on macro economy like commodities, and further affects the ups and downs of cotton and cotton yarn futures and trading sentiment of spot cotton and cotton yarn.


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