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Insight | Time:Jan 9 2017 10:46AM
Chinese cotton yarn price to hold largely stable in Q1 2017
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By the end of year, cotton price gradually stabilizes after falling for a period. Textile mills pay much attention to the cotton restock chance before Spring Festival and the market trend of cotton and cotton yarn after Spring Festival. The following are some points noteworthy:

1.Cotton yarn price is likely to hold stable before Lunar New Year

Price of cotton yarn was largely steady since mid-Dec 2016 supported by low inventory of finished goods, below 15 days in most small and medium-sized plants and lower than 30 days in large plants, and meager profit, although cotton price once inched down during this period. Spot profit of cotton yarn improved amid declining cotton price, mainly around 200-300yuan/mt. Cotton yarn mills were profitable if cotton used was purchased around late-Dec. Currently, cotton stocks were mostly around 20-30 days in spinners, and cost of spinners in inland using Xinjiang cotton for production was around 16,500yuan/mt, around 300-500yuan/mt higher than prevailing cotton price on market. Therefore, under such circumstance, cotton yarn mills faced minor losses. Thus, price of cotton yarn is hard to reduce with low profit and moderate sales despite of dropping cotton price.

Price of cotton is expected to change little before Spring Festival. Sales of cotton in Xinjiang have almost come to end, and ginners are unwilling to adjust price, focusing on issues like recouping capital now. Most small-sized cotton yarn mills plan to shut down for Spring Festival around Jan 20, and large plants intend to suspend production for holiday around Jan 25-28. Cotton yarn mills are reluctant to revise price too by the end of year. Thus, cotton yarn price is anticipated to be stable before Spring Festival.

2. Price of cotton is expected to be stable to weak in Feb, and that of cotton yarn may remain steady.

Market players showed strong watch-and-see stance at the beginning of 2016 in anticipation of cotton auction starting in Apr, and most held bearish view toward cotton price after cotton auction started, which dragged down cotton price in Mar 2016. Will cotton price decline too before cotton auction (cotton auction will start on Mar 6, 2017) in Feb 2017? Cotton price is more likely to be stable to weak in Feb 2017.

A small survey is made about the cotton stocks in spinners. Currently, cotton inventory is mainly around one month in cotton yarn mills, higher at 2 months, and spinners that hoarded up small cotton intend to replenish some cotton before Spring Festival, but the purchasing volume will only guarantee the production till end-Feb as cotton auction will commence from Mar. Cotton yarn mills are expected to show sidelined attitude after Spring Festival holiday, and demand for cotton is supposed to be not sound in Feb with ample cotton stocks and the coming cotton auction. But price of cotton yarn is not expected to decline. On one hand, most cotton yarn mills presented better mindset in 2016 compared with past years, expecting cotton price to be stable to firm after Spring Festival; on the other hand, downstream demand was moderate and orders can continue into production till end-Feb in some weavers. Mar and Apr are traditional peak season in textile industry, which may be supportive to cotton price.

As for cotton yarn market, cotton price is anticipated to be stable to weak after Spring Festival, but downstream demand may be moderate. Besides, imported cotton yarn market supports Chinese cotton yarn price to certain extent. Cost of Indian carded 32S for air-jet which will reach China in Feb is around 23,100yuan/mt, higher than the price of spot goods in China and flatting with Chinese cotton yarn 32S. Therefore, price of cotton yarn is likely to hold stable in Feb.

3. Reserved cotton is a good choice, and cotton and cotton yarn price may be firm or even climb up in Mar.

Most market players on cotton textile industry hold more optimistic view toward market outlook for cotton and cotton yarn price in 2017, but why do we expect their demand for cotton to be muted in Feb? Price of reserved cotton with relatively inferior quality is anticipated to be lower than that of new cotton on the market. Many spinners have used reserved cotton for production in 2016, and the quality of reserved cotton can satisfy their production requirement after underweight and poor quality was solved, especially medium-to-low count cotton yarn plants. It is learned that spinners still show high enthusiasm in purchasing reserved cotton amid cost factor. Besides, demand for cotton yarn is anticipated to gradually improve from Mar during peak season. However, price of cotton may be hard to rise with moderate transactions of reserved cotton but meager demand for market resource, and the linkage mechanism of cotton auction price based on Chinese and international cotton is supposed to pose pressure on price uplift. Thus, price of cotton and cotton yarn is likely to be firm or even inch up in Mar.

All in all, price of cotton and cotton yarn is both anticipated to be stable before Spring Festival holiday. Spinners are supposed to retreat to sideline in Feb as cotton auction will start in Mar, especially medium-to-low count cotton yarn plants, so trading of cotton may be not sound. Price of cotton is expected to be stable to weak in Feb and that of cotton yarn may hold stable. In Mar, price of cotton and cotton yarn is expected to be firm in traditional peak season and in anticipation of high buying interest toward reserved cotton.
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