Due to the sudden change in the reserve cotton bidding policy this week, the price of cotton yarn has dropped significantly. As of August 26, 2021, CY C32S pure cotton yarn closed at 27,100 yuan/ton, down 200 yuan/ton from the same period last week. The CC 3128B cotton index closed at 18,165 yuan/ton, down 376 yuan/ton from the same period last week.
On Monday, the cotton reserve announcement announced that the reserve cotton auction was limited to participation by textile companies, and the bidding by non-textile companies was stopped, causing market fluctuations. On Tuesday, cotton and cotton yarn futures both fell sharply. Judging from the cotton price, Zheng cotton began to strengthen all the way in June this year, reaching a high of 18,505 yuan/ton in the main market of Zheng cotton on August 18. This year, the task of selling cotton reserves began in early July. The process has been in full swing for more than half of the time. As of yesterday, a total of 369,300 tons of cotton reserves have been released. The transaction situation continues to be hot, with a transaction rate of 100%. Cotton prices “fail to cool down”, which instead supports the strengthening of cotton prices.
In order to stabilize cotton prices at this time, China Cotton Reserve has taken measures to prohibit traders from participating in reserves. This measure has a negative impact on cotton prices. The price impact is immediately visible. On August 24, the average transaction price of reserve rounds was 17,186 yuan/ton, a decrease of 611 yuan/ton from the previous day. Among them, the average transaction price of Xinjiang cotton was 17,238 yuan/ton, a decrease of 644 yuan/ton from the previous day. tons; the average transaction price of real estate cotton was 17,006 yuan/ton, down 551 yuan/ton from the previous day. The correction of the transaction price of reserve cotton was significantly higher than the decline of Zheng cotton on that day, which is beneficial to textile cotton enterprises to reduce costs and improve the competitiveness of gauze cloth. In the next three days, the main settlement price of Zheng Cotton fell to 17585, 17540, and 17590 yuan compared to 17775 yuan/ton on the 23rd. However, in the long term, this policy may not be the key to controlling cotton prices. The real “pressure” may come from downstream concerns about the peak season not being as good as expected, the current weakening phenomenon at the macro level, and the current market concerns about whether relevant quota policies may be introduced in the later period.
After cotton yarn futures fell sharply on Tuesday, some cotton yarn traders offered profits and shipped goods. , most cotton yarn traders on the market have lowered their quotations, and the overall decrease is between 200-300 yuan/ton. However, currently there are not many textile companies cutting prices in the market, and the quotations of textile companies remain firm. According to feedback from textile enterprises, downstream weaving enterprises currently receive very little goods, and the delivery of cotton yarn is not smooth. Although the goods are shipped at a discount, the actual transactions are still small. As of August 20, the average daily inventory of finished cotton yarn products in textile companies was about 7 days. Although it is not high, it has an upward trend. Textile companies currently have few stocks in the factory, and there is no pressure on operations. Therefore, they have a strong desire to raise prices, and only a small number of companies offer profit margins. The average daily inventory of cotton yarn raw materials in downstream weaving mills dropped to 15.4 days, a significant decrease. Overall, the spot movement of cotton yarn is still slow. After the price dropped, although the transaction has improved slightly, the market is still light. From the perspective of downstream weaving mills, the inventory of finished gray fabrics is still high. As of the 26th, China’s gray fabric inventory index closed at 26.1 days. Raw material inventories are falling while finished product inventories are rising. In order to reduce inventory backlog, weaving mills can only choose to reduce the operating rate. Taking the Zhangcha area as an example, there is currently a situation of “explosion” of cotton yarn in Foshan, and the warehouses are basically filled with cotton yarn. At present, the circular knitting machines in Zhangcha area are under-operated, with the general feedback being only 30% to 50%. The current yarn price is high, which is difficult for the downstream to accept. In addition, the knitted fabrics are not shipped smoothly, so the cotton yarn inventory is full.
From the perspective of industry operation, the benefits this year have been fully reflected in the previous increase. Although traders currently have sufficient stocks of cotton yarn and are cautious in ordering, the inventory of finished products in yarn mills is low, and the market generally still has expectations for September. Therefore, there will be no large-scale sales in the short term, which will still form a strong support for the market, but the risk remains. Accumulation, later attention needs to be paid to changes in inventory, realization of expected growth in consumption, etc.
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