From the perspective of the domestic epidemic situation and demand seasonality, cotton yarn demand will continue to improve in June. However, downstream demand has entered the traditional off-season in July, and export orders are still restricted by Sino-US relations and cannot be freely displayed. Therefore, from the perspective of the entire cotton spinning industry, demand will become the key to the future cotton yarn market. Since June, although the epidemic has gradually eased, it still needs to be observed whether the demand for downstream cotton yarn can continue to improve. Currently, the cotton yarn inventory of textile companies is at a historical high, and weekly inventory data continues to slowly improve. However, whether the inventory can return to normal levels depends on the resilience of demand.
Enterprises are less willing to replenish their inventory
Judging from the transaction situation, the transaction of cotton yarn in May was better than that in April. At the same time, the processing profit of spot cotton yarn has narrowed due to the sharp decline of Zheng Cotton. The loss of cotton yarn processing in the early stage was as high as 2,000 yuan/ton, and recently it has narrowed to a loss of less than 1,000 yuan/ton. The domestic epidemic situation was also better in May than in April, and restrictions on corporate purchasing and sales activities were gradually reduced. In late May, due to the sharp drop in cotton prices, some small textile companies that had suspended production in the early stage saw their losses shrink and some resumed work and production. However, medium and large textile companies still maintain their original startup and continue to reduce production. In addition, due to the poor profits of pure cotton yarn processing by textile enterprises, the number of textile enterprises switching production has increased.
As of June 2, the cotton inventory of textile companies was 21.6 days, a month-on-month decrease of 0.3 days. Although cotton inventories of textile companies are at historically low levels, companies are less willing to take the initiative to restock or increase inventories. The operating rate of textile enterprises was 46%, an increase of 0.1 percentage points from the previous month; the cotton yarn inventory of textile enterprises was 37 days, an increase of 0.8 days from the previous month. After falling for several consecutive weeks, the cotton yarn inventory of textile enterprises has increased again, which is also in line with the basic feelings of enterprises. Because as the epidemic eases, market demand has improved, but overall demand is average, so companies lack confidence in future demand.
Inverted domestic and foreign raw material prices
Similar to the situation of cotton prices in internal and external coils, cotton yarn prices in internal and external coils also show differentiation. In May, importedcotton yarn prices basically maintained a high level of oscillation, while domestic cotton yarn prices oscillated weakly, resulting in a further widening of the price gap between domestic and foreign cotton yarns. The main reason is that my country’s export performance is weak, while exports from Vietnam, India and other countries have performed well. However, from the perspective of raw material prices, my country’s export advantage is very obvious. However, it is limited by the Xinjiang cotton ban and the United States’ additional tariffs on Chinese textiles, resulting in the outflow of orders. Since March, the domestic epidemic situation has not been optimistic, which has also led to abnormal production and transportation of cotton yarn, exacerbating the weak demand to a certain extent. In addition, since last year, the U.S.’s ban on Xinjiang cotton has become increasingly restrictive, resulting in the inability to give full play to its domestic cost advantages.
Overall, the cotton yarn inventory of domestic textile companies has been slowly depleted recently, but there is a large gap from the normal level, and inventory pressure is still there. Due to the continuous decline in cotton prices, losses in cotton yarn processing have narrowed, and the operating pressure of textile companies has eased. However, they are still not optimistic about the mid-term demand for cotton yarn, because companies mainly buy cotton raw materials as they are used. The domestic epidemic situation continues to improve, and domestic demand is improving in stages. However, export orders are still restricted by the Xinjiang cotton ban and cannot be freely exercised. Therefore, although the demand for cotton yarn has improved in the short term, whether the previous downturn can be completely reversed still depends on the market demand, otherwise the mid-term weakness will be difficult to change.
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