SunSirs: Costs Rose Sharply, and Cotton Yarn Prices Followed Suit

Price trend

After two consecutive days of sharp increases following the holiday, Zhengzhou cotton futures saw a slight pullback, with cotton yarn prices following suit. As of February 26, the spot price of 21S cotton ring-spun yarn in Shandong province was around 22,400 RMB/ton, up 200 RMB/ton from before the holiday; the spot price of 32S cotton ring-spun yarn was around 23,850 RMB/ton, up 250 RMB/ton from before the holiday.

Market analysis

Following the holiday, Zhengzhou cotton futures saw a significant price increase, which in turn drove up cotton yarn ex-factory prices. Xinjiang textile mills reacted the fastest, adjusting prices more drastically. Medium and high-count yarns were the main drivers of this price hike, but downstream acceptance was lukewarm, resulting in weak actual cotton yarn transactions. The market was characterized by prices but no sales, with most intermediaries, fabric mills, and garment factories adopting a wait-and-see approach, awaiting further market clarity. During the week, most inland textile mills resumed production, but downstream fabric mills had limited operations and were not actively purchasing. The market focused on fulfilling previous orders, leading to increased yarn inventory. The market is expected to gradually recover next week; continued monitoring of Zhengzhou cotton futures trends is recommended.

Regarding imported cotton yarn: Prices for some varieties of imported cotton yarn have risen slightly recently, but actual transactions remained sluggish, with inquiries being the main activity. Vietnamese yarn mills have gradually resumed operations, and prices have remained stable. Domestically, traders have generally tentatively raised imported yarn prices by 200-300 RMB/ton. Downstream weaving enterprises were resuming operations slowly, and overall trading remained weak, with the market awaiting further release of demand.

Operating Status: Following the holiday, textile enterprises in inland areas have gradually resumed operations, with operating rates basically returning to pre-holiday levels. Inland areas, operating rates were around 50-60%, while in Xinjiang, they remained above 90%. As of February 26, the operating rate of textile enterprises in major regions was 64.6%, an increase of 59.51% compared to the previous week.

Inventory Situation: During the Spring Festival, textile enterprises in Xinjiang operated normally, resulting in a significant increase in inventory. This week, textile enterprises in inland areas gradually resumed operations, but the recovery of downstream operations was slow, with the focus on shipping previously ordered goods. Inland enterprises maintained an inventory of approximately 18-25 days. As of February 26, yarn inventory of textile enterprises in major regions was 34.7 days, a weekly increase of 2.69%.

On the cost side: Zhengzhou cotton futures rose sharply for two consecutive days after the holiday, then retreated slightly. Market sentiment was bullish, and US cotton futures provided support for the domestic market during the Spring Festival. The USDA's outlook for the new season indicated a shift towards a tight supply-demand balance. Driven by the rise in futures prices, spot prices followed suit, but market transactions were sluggish, with investors adopting a cautious wait-and-see attitude..

On the demand side: Fabric factories and dyeing plants were gradually resuming operations after the holiday, but production had not yet returned to normal and is expected to fully resume after the Lantern Festival (January 15th of the lunar calendar). As of February 26, cotton and yarn prices were rising continuously, and the future market trend remained to be seen. According to statistics, as of February 26th, the average operating rate of domestic cotton textile manufacturing was 25.63%, an increase of 17.41% compared to the previous period.

Market Outlook:

Cotton prices are expected to remain volatile in the short term, but the overall trend is likely to continue its upward momentum. Post-holiday, fabric mills were recovering slowly, new orders were limited, and downstream demand had not yet fully absorbed the previous price increases. Cotton yarn prices faced the risk of a correction, and cotton yarn prices are expected to fluctuate narrowly in the short term.

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