According to feedback from cotton merchants, although inquiries from textile mills in various countries have picked up after the sharp drop in cotton prices last week, actual transactions are still sporadic. In the past week, Thailand, Vietnam, and Bangladesh have all purchased Australian cotton, and the basis difference of different grades is 2,200-4,300 points.
Generally speaking, in the face of the current turbulent market environment, textile mills are very cautious in purchasing. Although the price has dropped much more than before, the excessive drop in futures prices has caused textile mills’ confidence in price discovery in the futures market to be severely damaged. What the market needs most now is to stabilize as soon as possible and return to a level that is acceptable to both producers and consumers.
Analysts believe that if prices can stabilize soon, textile mills will be more active in asking prices. On the surface, with the plummeting cotton price, the price ratio of floral yarn has been greatly improved, and the spinning mills have not yet made large purchases. However, the problem is that the spinning mills still have a large amount of high-priced cotton raw materials purchased in the early stage that have not been digested. High-priced cargo is about to arrive at the port, and the spot price of replacing the early raw materials has become much cheaper.
Now, yarn demand and prices are already falling due to weak orders. Considering that the yarn mills over-purchased raw materials in the early stage, the current inventory of high-priced raw materials is enough to last for several months. It will take time to convert into yarn for sale, and it will face losses. Only after all these are completed can the current low-priced raw materials be used to gain benefits.
Of course, spinning mills can purchase now to dilute production costs, but at a time when raw material inventories and financing costs are rising, doing so is obviously risky, especially since textile mills often complain that installation dates have been repeatedly delayed. For textile mills, the best situation now is that prices stabilize as soon as possible, and then the balance of raw materials and yarns can also stabilize. Only in this way can profits be possible. Domestic enterprises also said that the main problem now is lack of confidence. As long as the market is stable, no matter how much the cotton price is, as long as the price is stable, enterprises can produce according to the situation.
It can also be seen from this that it is not advisable to worry too much about current needs. In fact, import companies from various countries have been making inquiries during the decline in international cotton prices. Last week’s US cotton export weekly report also showed that the number of actual canceled contracts was relatively limited. Currently, ICE futures are obviously oversold. If there are not a large number of contract breaches in US cotton exports, textile mills will gradually increase purchases after prices stabilize, and they will also be able to arrange purchases, sales and profits.
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