China Cotton Textile Association

Cotton yarn market keeps weakening recently, but driven by seasonal demand, sales of low-count open-end cotton yarn are moderate, and supply is tight in some plants. Operation status of open-end cotton yarn will be analyzed in the following part.

1. Open-end cotton yarn price is firm recently.

Price change of open-end and ring-spun cotton yarn
Unit: yuan/mt	CY OEC10	CY C32
Jan-17	0.42%	0.56%
Feb-17	1.11%	1.25%
Mar-17	0.51%	0.81%
Apr-17	-0.92%	-0.97%
May-17	-0.41%	-0.81%
Jun-17 (By Jun 20)	0.21%	-0.13%

Price of open-end and ring-spun cotton yarn diversifies in Jun, and that of open-end cotton yarn is stronger than that for ring-spun ones on firm major feedstock price and tolerable seasonal demand.

2. Profit of open-end cotton yarn is higher than that of ring-spun ones.

Profitability of open-end cotton yarn 21S was volatile in 2016, with losses once as high as 1,000yuan/mt, but open-end C21S was largely profitable in 2017 by now, and the margins were higher than ring-spun cotton yarn 32S. Currently, the profit of open-end cotton yarn 21S is around 400yuan/mt, but different plants may see various appearances, while the tendency can be taken as reference.

3. How will it fare later?

Firstly, in view of price spread between Chinese and Indian open-end cotton yarn, Indian spot OEC10S in China was around 500yuan/mt lower than Chinese ones, while spot Indian OEC21S lacked price advantage compared with Chinese one. However, downstream demand for imported open-end cotton yarn is increasing recently, but supply is not ample, so imports of open-end cotton yarn is likely to grow.

Secondly, from the perspective of supply and demand, many cotton yarn plants in China suspended or slashed open-end cotton yarn production in 2014-2015 amid sluggish market sentiment and poor margins, resulting into obviously decreasing open-end cotton yarn supply. However, open-end cotton yarn market improved from the second half of 2016, so some plants restarted open-end cotton yarn production or added open-end equipment, and quality of open-end cotton yarn improves with upgraded equipment. Besides, open-end cotton yarn capacity rises in Xinjiang in recent years, and the quality is high with advanced equipment and high cotton quality. Higher quality of open-end cotton yarn in recent years stimulates demand to certain extent. Open-end cotton yarn is not only used for denim, and some weavers also choose to use quality open-end cotton yarn to replace siro-spun cotton yarns. Besides, some weavers turn to use open-end C32S to substitute ring-spun C32S.

Finally, from the angle of government policy, government of Hebei, Gaoyang released a policy emphasizing product quality in textile mills in Jun and will strictly control the consumption of feedstock with low quality. The treatment is very rigor in recent one month, which also impacts the open-end cotton yarn market nearby including Shandong. Thus, price of available scraps climbs up, and some small-sized plants that do not meet standard stop production. Under revolution on supply fundamental, except for environmental protection issue, government is supposed to pay more attention to improve the quality of textiles including cotton yarn.

All in all, with narrower price gap between imported and Chinese cotton yarn, demand for Chinese cotton yarn improves; quality of open-end cotton yarn has apparently heightened with industrial upgrade, resulting into higher consumption in downstream market. Driven by downstream demand and government policy, quality of open-end cotton yarn is expected to improve further, and open-end cotton yarn market still enjoys developing potential in later period. In short run, price of open-end cotton yarn is more likely to keep steady.