What Pushes Up Chinese Cotton Yarn Price?

Market Intelligence

What Pushes Up Chinese Cotton Yarn Price?

China's cotton yarn prices kept surging last week, with increment mostly staying at 1,000 yuan/mt, higher at 1,500 yuan/mt. With insufficient orders from downstream weavers and during the traditional slack season, what is pushing up cotton yarn prices?

1. Firm cotton market

Cotton futures soared since end-June, and trading price of reserve cotton and price of Chinese cotton yarn both moved higher. From June 27 to July 15, average trading price of reserve cotton went up by around 2,144 yuan/mt or 17.1%, and Chinese cotton yarn price surged by around 1,320 yuan/mt or 6.7% during this period. Price increment of cotton outpaced that of cotton yarn.

Average trading price of reserve cotton hit a new high at 14,671 yuan/mt on July 15, which was the major reason for the price uplift of cotton yarn last weekend.

2. Profit of cotton yarn mills

Cotton used by cotton yarn mills now was mainly bought after cotton price surged as spinners had cotton stocks of around 20-30 days. Therefore, cotton yarn mills were forced to adjust up offers.

Based on current cotton price, losses of cotton yarn mills have increased to around 1,000 yuan/mt based on spot cotton price. But if cotton stocks are high with spinners, profit is considerable based on current selling price.

3. Price of imported cotton yarn is higher than Chinese cotton yarn, supporting Chinese cotton yarn price

Price of Chinese cotton yarn has been lower than imported cotton yarns for long this year. Mainstream price of Chinese high-grade carded 32S was around 22,000-22,500 yuan/mt, that of Indian 32S for airjet was around 23,500 yuan/mt, and that of Vietnamese 32S for airjet was around 23,000 yuan/mt. Ordering cost of imported cotton yarn that will reach China later is supposed to be high.

Small-sized cotton yarn mills which had small cotton stocks amid tight capital are under deficit, and price uplift could offset some losses, but downstream weavers showed low acceptance, leading to accumulating cotton yarn stocks. Under such situation, small-sized spinners would have tighter capital, unable to purchase cotton, which may further result in production suspension. Cotton yarn mills that had ample cotton stocks witnessed relatively better performance, and many spinners chose to lock in cotton price after receiving advance payment for cotton yarn.?

Cotton yarn inventory was still slanting low although it has accumulated, especially carded 32S and 40S. Supply of cotton yarn was tight on the whole, and downstream weavers increased buying cotton yarns slightly. Actually, traders' increasing enthusiasm in participating in cotton yarn trade was one of the reasons for hiking cotton yarn price when demand from weavers was not sound. Traders purchased more cotton yarn than weavers.

Therefore, various reasons pushed up cotton yarn price recently, but surging cotton price (including the trading price of reserve cotton) and decreasing profit was the major reason. Although offers have increased apparently, actual trading is still hard to chase up. But spinners are still unwilling to discount offers. Discounts at around 500 yuan/mt are available for regular customers in some plants. Cotton yarn mills still expect cotton yarn price to rise further with low stocks of finished goods. Price of cotton yarn is supposed to increase further in the medium run.

What changes do polyester/cotton yarn market witness with rising cotton and cotton yarn price but less volatile PSF?

1. Price of polyester yarn climbs up

Price of polyester/cotton yarn was pushed up with rising costs, and price increase accelerated since June when cotton price soared rapidly. Price of polyester/cotton yarn moved up substantially in South China like Fujian and Zhejiang. Taking ring-spun T/C65/35 32S as an example, it has gone up by around 1,000-1,500 yuan/mt in the first half of year in South China, but rose by around 700-800 yuan/mt during this period in North China like Shandong and Hebei with low downstream acceptance. Actually, some polyester/cotton yarn plants even did not revise up offers in Hebei.

2. Spot profit of polyester/cotton yarn is squeezed

Profit of polyester/cotton yarn was squeezed when price of cotton surged in late-April and was narrower further after cotton price soared rapidly in early July. During the latter uptrend on cotton market, actual margins of polyester/cotton yarn did not shrink much in plants with around one-month of cotton stocks.

3. Demand for CVC yarns increases

Taking cotton yarn 32S and CVC 60/40 32S as an example, price spread of these two enlarged to around 3,100 yuan/mt from 1,100 yuan/mt this year with buoyant cotton and cotton yarn. Some weavers turned to use CVC yarns (with higher cotton proportion in feedstock) instead of cotton yarn when cotton and cotton yarn price increased too fast.

Therefore, price of polyester/cotton yarn is expected to keep increasing with controllable inventory and rising cotton price. Demand for polyester/cotton yarn picks up when cotton price surges too much. But profit of polyester/cotton yarn plants shrinks in plants having small feedstock inventory. Risks may enlarge when feedstock inventory is expected to be scarce in August-September in polyester/cotton yarn plants.

China's cotton textile market welcomes long-lost uptrend

Prices of cotton, VSF and PSF are rising in China, resulting in improved market sentiments and also an increase in speculations. A simultaneous hike in prices was last witnessed in 2010.

With soaring feedstock, downstream yarn price also followed up, and price increment of some yarns was bigger than that of feedstock.

VSF demand improves but supply is tight

Price of VSF climbed up since last year under environmental protection pressure and with better demand from downstream market. Rayon yarn capacity accumulated stimulated by feedstock and demand sector. Inventory of VSF remained low this year and some plants even did not have stocks at hand with growing demand. Price of VSF moved up in the traditional slack season of July with rising demand from spinners and traders and high operating rate of rayon yarn plants. Presales were moderate in VSF plants.

Rayon yarn: Price increased with cost support and better sales

Rayon yarn price uplift was also driven by cost with low inventory of finished goods. Downstream buyers started accepting price uplift on rayon yarn market, and sales of rayon yarn improved successively. Market outlook: Price of rayon yarn is supposed to keep increasing in short run with firm feedstock, low inventory and not big selling pressure.

PSF and polyester yarn

Price of PSF moved up unexpectedly as low inventory was not enough to shoulder up the whole market when feedstock market was under sluggishness. Rising polyester yarn price stimulated PSF market, and demand for PSF from traders and spinners apparently mounted, driving price of PSF to rise.