Spinners' Choice: Reserved Cotton Or New Cotton?

Market News

Spinners' Choice: Reserved Cotton Or New Cotton?

In September, average trading prices and trading proportion of reserved cotton rebounded obviously. In the meantime, new seed cotton began to arrive on the market successively, but the competitiveness of new cotton seems to be weaker than reserved cotton.

Average trading prices and trading proportion of reserved cotton

Average trading prices of reserved cotton rallied in early September and soared in the second week of September, after continual decrease since mid-August. Trading proportion also recovered to above 90%.

Base selling price

Since early August, base selling price of reserved cotton stepped downward and for the week from September 12-18, the price scored at 13,518 yuan/mt, down 1,110 yuan/mt from the highest level of 14,628 yuan/mt in early August.

Firstly, cotton inventory in cotton yarn mills was mounting slowly from mid-August. Currently, inventory in small and medium mills reached about 30 days, while in large mills, inventory mostly last around 60 days or above 60 days. With the coming end of state cotton auction, mills were active to purchase reserved cotton to maintain the production.

Ginning costs of new cotton in Xinjiang and inland are higher than reserved cotton prices. The costs of 2016/17 upcountry cotton are close to 14,000 yuan/mt and if the purchase price of seed cotton reaches 7.20 yuan/kg, then the costs are nearly 14,369 yuan/mt.

For Xinjiang cotton, if the seed cotton prices are at 6.50 yuan/kg, the costs are at 13,400 yuan/mt. Considering the losses and the freight costs from Xinjiang to inland, 2016/17 Xinjiang cotton prices are likely to approach 14,500-15,000 yuan/mt, which is too high for spinning mills.

In theory, there are obvious cost edge for reserved cotton to produce cotton yarn 32S. If the cotton yarn is produced by 2016/17 Xinjiang cotton, the losses are bound to happen.

Therefore, for cotton users, reserved cotton has obvious price edge. And according to a survey, most mills expect that the new cotton prices will be acceptable at 14,000 yuan/mt, if the price is higher than this level, the production pressure is seen. So mills choose the reserved cotton at present and take a looking mood on new cotton price trend, but mills mainly replenish stocks to end October as they also expect the new cotton prices may weaken later after the intensive arrivals of new cotton.