Looking ahead to August, from a macro perspective, there are no significant macro benefits in August, and the spot cotton transactions are limited, which may lead to a decline in prices. At the same time, from a seasonal perspective, the off-season impact continues in August, and the enthusiasm of spinning enterprises for production is expected to be low in the middle and early parts of the month. However, as the traditional peak season of "Golden September and Silver October" approaches in the latter part of August, demand is expected to gradually recover.

In July, domestic cotton prices increased significantly due to the rise in cotton prices at the cost end, leading to an increase in domestic cotton yarn prices. Looking ahead to August, given that the cotton textile market is still in a off-season for a long time, and the spinning enterprises' inventory continues to rise, with a large supply pressure, it is expected that cotton yarn prices may decline slightly in August against this backdrop.

Cost-driven rise in cotton yarn prices

Although the cotton spinning industry chain is not very prosperous, the price of cotton has risen significantly, which has still led to a slight increase in the price of cotton yarn in July. According to the monitoring of Zhuoc创Information, as of the end of July, the spot monthly average price of cotton in China was about 14,741 yuan/ton, up 3.41% from the previous month and down 3.91% year-on-year. In the same period, the national ordinary high-quality 32-count pure cotton yarn monthly average price was about 21,430 yuan/ton, up 2.29% from the previous month and down 2.07% year-on-year.

But from the market reaction, as the cost center of cotton yarn is lifted, cotton spinning enterprises are cautious about the high price purchase. Specifically, from the fundamental面, due to the fact that the market is in the off-season of demand in July, and the continuous high temperature weather in the inland, the number of spinning enterprises that reduce production and holiday is increasing. At the same time, the downstream fabric factory's stock of raw cloth is increasing, the speed of inventory reduction is slow, the purchase of raw materials is cautious, and the order is mainly for the urgent need to make up for the goods, and the order of spinning enterprises is less. In addition, from the supply side, the cotton yarn inventory of spinning enterprises is high, and the supply is loose.

From a profit perspective, as of the end of July, the theoretical monthly gross profit for pure cotton ring-spun high-grade 32s cotton yarn was -720.35 yuan/ton, a decrease of 50.15 yuan/ton from the previous month's average. This reflects that although cotton and cotton yarn prices rose in July, the increase in cotton yarn was not as much as cotton, and the cost pressure was relatively high, leading to an expansion of the theoretical immediate processing profit loss for cotton spinning enterprises.

From the start-up situation, the start-up load of the national cotton spinning enterprises in July was 61.20%, down 0.75 percentage points from the previous month.

Reflecting in the inventory, the average days of pure cotton yarn inventory for the cotton spinning enterprises above the designated scale in July was 30 days, an increase of 11.11% from the previous month; the average days of pure cotton gray fabric finished inventory for the textile mills above the designated scale was 42 days, an increase of 31.25% from the previous month. The orders of the downstream weaving enterprises in July were less, and the enthusiasm of the mills to purchase cotton yarn was average. The sales of cotton yarn in spinning enterprises were not fast, and the inventory increased.

The price of cotton yarn in August may fluctuate and decline, but the expected range is expected to be small.

Looking ahead to August, from a macro perspective, there are no significant macro benefits in August, and the spot cotton transactions are limited, prices may decline. At the same time, from a seasonal perspective, the off-season impact continues in August, and the enthusiasm of spinning enterprises for production is expected to be low in the middle and early parts of the month.

But as we enter late August, with the traditional busy season of "Golden September and Silver October" approaching, demand is expected to gradually recover, and some downstream enterprises may start stockpiling in advance. As a result, the orders of spinning enterprises are expected to increase, and therefore, the production load of enterprises is expected to start rising.

Overall, it is expected that cotton yarn inventories of spinning enterprises will increase in August, and the supply side will be loose; from the demand side, the downstream fabric factory is not actively started, and the raw cloth inventory is high, the purchase of cotton yarn is cautious, and the orders of spinning enterprises may not be much.

From the raw material perspective, the cotton market is gradually returning to the fundamentals: downstream textile enterprises have limited orders, spinning enterprises have poor profits, which may suppress cotton demand, and at the same time, the expectation of increased cotton production in the new season is strong, so it is expected that cotton prices in August may fall, the support from the cost side is weakened, and it is bearish for the spot price of cotton yarn.

To sum up, it is expected that the domestic cotton yarn price in August may fluctuate downward, and the price may fall by 100 yuan/ton to 21100-21700 yuan/ton. In the later period, close attention should be paid to the follow-up of orders, changes in the macro market, etc.

The risk factors lie in whether the cotton import quota will be issued. If the quota is implemented, there may be a possibility of a price adjustment for cotton. In addition, there are still many uncertainties in the tariff issue, which may affect the market situation.

As an integrated internet platform providing benchmark prices, on August 28th, the benchmark price of 32S cotton yarn by SunSirs was RMB 23,550.00 per ton, a decrease of 0.21% compared with the beginning of this month (RMB 23,600.00 per ton).

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