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Insight | Time:May 30 2018 3:18PM
How do the three pure spun yarn perform with this round of price rise?
 
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Cotton and cotton yarn futures hit the limit up once again. Most spot market players keep standing on the sidelines. How do cotton, PSF, VSF and yarn perform after this round of price rise?

On May 29, cotton and cotton yarn futures hit the limit up. Cotton futures contracts for May’19 went close to 19,000yuan/mt and main contracts for Jan’19 to 18,555yuan/mt, up by over 2,000yuan/mt against that on May 15. In the meantime, open interest and price of cotton yarn futures were also pushed up. Price increment of spot cotton yarn mainly ranged in 500-1,000yuan/mt, but far behind that of cotton and cotton yarn futures. So how do the futures boost the spot market and how do the cotton, VSF, PSF and yarn change?

1. Cotton and cotton yarn futures improve firmly.


After previous surge of cotton futures, transactions of cotton yarn follow up gradually. But in recent two days, trading volumes are reported to reduce somewhat. For soaring cotton and cotton yarn futures, most producers prefer to stand on the sidelines. Some stop offering spot imported cotton yarn and some raise offers further. But for downstream weavers, it is hard to adjust price up. Additionally, with orders reducing, weavers mainly remain stable offers with few rising.

2. Comparison of cotton, PSF and VSF prices


Cotton and PSF prices kept flat while VSF price sustained dipping before May 16. However, after May 16, cotton futures soared, driving spot cotton and VSF both up by over 500yuan/mt while PSF was affected limitedly as it can hardly substitute cotton. Recently PSF price inches down amid weakening crude oil and polyester feedstock cost.

3. Comparison of spun yarn price and profit


In the second half May, cotton yarn, rayon yarn and polyester yarn prices all pick up. Different from PSF trend, polyester yarn sees upswing and low inventory amid active demand from downstream.


Polyester yarn enjoys the best profits at over 1,000yuan/mt at present, followed by cotton yarn at over 500yuan/mt, while rayon yarn profits are compressed severely. With prices of spot cotton and state reserved cotton rising, cotton yarn mills suffer larger cost, but price of cotton yarn does not surge as much as cotton, so the profits narrow but still at over 500yuan/mt.

4. Comparison of cotton yarn, rayon yarn and polyester yarn inventory


Cotton inventory in cotton yarn mills hikes gradually and now reaches 8.7% higher y-o-y. VSF inventory in rayon yarn mills reaches 22.5 days, one time higher than the same period of last year. PSF inventory in polyester yarn mills declines to around 11 days, down by 12% on the year.



Apart from feedstock, inventory of cotton yarn and rayon yarn drops, especially cotton yarn inventory which decreases to 13.4 days, down by 43.5% y-o-y. Rayon yarn inventory hovers at 16.5 days, down by 32.7% year on year. Inventory of polyester yarn also stays low at 3.3 days, down by 50% y-o-y.

May average inventory of feedstock and product in mills in 2017-2018
Unit: day Feedstock inventory in mills Product inventory in mills
PSF VSF Cotton Polyester yarn Rayon yarn Cotton yarn
2017 11.0 13.9 37.3 10.6 23.2 22.2
2018 15.4 22.2 37.1 3.7 18.0 15.4
Change 40.4% 59.8% -0.6% -65.4% -22.4% -30.4%


In terms of feedstock, monthly cotton inventory in cotton yarn mills changes slightly in May compared with last year, while PSF and VSF inventory turns much higher. In terms of products, inventory of the three pure spun yarn all declines, especially polyester yarn, followed by cotton yarn and rayon yarn. Traders play increasingly significant role in cotton yarn industrial chain.

On the whole, soaring cotton futures buoy cotton and cotton yarn prices, but cotton fabric has not seen general price rise and orders to weavers are reducing. The related VSF and PSF industrial chains go different ways. VSF and rayon yarn prices move up promoted by cotton while PSF shows weakness amid softening crude oil yet polyester yarn performs well on active downstream demand.
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