In mid-Mar, export orders, especially those from Europe and the US, which had been taken by end-user plants were canceled intensively, leading to sharp fall of cotton yarn market with price dropping and inventory accumulating quickly. But entering Apr, though cotton yarn market sustains previous weakness, some differences are seen.
1. Orders improve in some regions amid overall weakness.
As the traditional peak season of textile industry in the first half year, cotton yarn market showed very slack in this Apr hit by coronavirus pandemic. Even so, the market was not as bearish as expected in Mar. It was heard that downstream plants received a large amount of cotton gauze mask orders from Japan and the production could sustain to end-Apr, which promoted the procurement of cotton yarn like carded 40S. On the other hand, orders from China local market also improved, but mainly carded 32-40S. However, open-end cotton yarn, high-count cotton yarn and combed cotton yarn remained dull and the inventory kept rising. As a whole, cotton yarn market has not deteriorate further in Apr. The overall inventory is still in uptrend, but the increase slows down compared with that in mid- to late Mar.
As for operating rate, some cotton yarn mills have reduced production under the rise of inventory, but it is not seen at large. Overall run rate of cotton yarn mills has moved down slightly.
2. Cotton yarn price falls at a slower speed.
Cotton yarn price is still in downtrend, but the decrease slows down obviously in Apr compared with mid- to late Mar. Some products like carded 40S keep stable in Apr, while other products are still sold with discounts and some large mills are also underselling. Conventional cotton yarn declined 1,000-1,500yuan/mt cumulatively in mid- to late Mar yet 0-500yuan/mt in Apr. High-count cotton yarn like compact-spun combed 60S decreased 1,500-2,000yuan/mt in mid- to late Mar yet 0-500yuan/mt in Apr.
The retard of cotton yarn price decline is partly due to the rebound of cotton price, and on the other hand, it also reflects that downstream orders do not deteriorate continually.
3. Actual profit of cotton yarn restores gradually.
Previously, spot profit of cotton yarn mills seemed good, but with high-priced cotton stockpiles, the actual profit was thin and most mills suffered losses under one-month cotton inventory. Cotton yarn price slowed to decrease in Apr, and the high-priced cotton stockpiles were consumed, thus the actual profit of cotton yarn mills restored gradually. According to CCFGroup, cotton yarn mills can reach breakeven or enjoy slight profit at present.
How will China cotton yarn market develop later?
Firstly, affected by the pandemic outside China, cotton yarn producers such as India, Vietnam and Pakistan are seriously hit. Cotton yarn imports may reduce largely, which is favorable to the sales of Chinese low to medium-count cotton yarn. The stocks of imported cotton yarn stayed high at present.
Secondly, according to foreign media, Europe and the US will lift the lockdown gradually from May. Amid the suspension of production in Southeast Asian countries, orders to China may improve. However, it is just a possibility, and finally it will depend on the control of the pandemic and recovery of economic activity.
According to CCFGroup, downstream orders have not shown signs of improvement. The orders from China local market may reduce in May, and the orders of masks mentioned above will also finish at that time. Many weavers plan to take holidays or reduce production in May. If the pandemic outside China could not get controlled and the orders could not recover, cotton yarn sales and price will have a larger possibility to move down and cotton yarn mills will cut or suspend production increasingly.
