In the past week, although China is about to enter the Spring Festival holiday and the rise in yarn prices has begun to slow down, with the correction of ICE futures, the international spot market demand is still active.
That week, there was a transaction for Australian cotton SM 1-5/32 grade. The basis of the spot quotation in the main port of Asia was 1350-1400 points, and the basis of Xinhua was 1300-1350 points. Most others Basis in origin strengthened and textile mills continued to rebuild raw material and product inventories. Transactions in the Chinese market have significantly decreased. Pakistan purchased low-grade US cotton, Argentinian cotton and West African cotton, Bangladesh purchased West African cotton and Brazilian cotton, and Vietnam purchased US cotton, West African cotton and Indian cotton.
As futures prices fall, on-call price transactions also increase. Overall, demand from textile mills remains stable, but no one is willing to pursue higher prices. Buyers are increasingly interested in forward quotations of US cotton and Brazilian cotton (delivery in the second half of 2021). The export situation of US cotton is still very good. As of last week, the cumulative contract volume has exceeded the same period last year by more than 1.3 million bales. With six months left in this year, USDA is likely to continue to raise its U.S. cotton export forecast, especially as retail demand continues to increase.
At present, the rapid rise in global yarn prices has slowed down, mainly due to the reduction in demand before the Spring Festival. However, since the inventory level of the textile supply chain is generally very low, the market expects yarn prices to remain strong and will increase again after the Spring Festival holiday.
Outside of China, although China’s Spring Festival holiday did not have a particularly big impact, the reduced demand in China still made cotton yarn prices in India and Pakistan weak, especially in India. The reason is that domestic yarn prices in Bangladesh and Pakistan are firmer than export prices, while India is more dependent on yarn exports. Other regions, including Indonesia, report that they benefit from European and American restrictions on Xinjiang’s cotton and textiles.
From the perspective of India’s clothing exports, the country’s textile terminal demand has basically returned to the level before the epidemic, but this is largely due to the tight inventory that occurred during the worst period of the epidemic. It should be noted that the demand recovery in recent months is a compensatory increase. Once the inventory in the supply chain is replenished, a real recovery will be needed at the retail end to avoid another decline. In the process of textile enterprises rebuilding inventories, demand signals are sometimes amplified a lot, and the market must be aware of this.
At this stage, cotton prices are high and inventories in the cotton textile supply chain are tight. Textile mills have increased their yarn quotations and achieved better profits. For price increases to be sustainable, wholesale and retail demand for textiles needs to continue until the inventory rebuilding phase is over. As the northern hemisphere enters the second and third quarters, the true recovery from the epidemic will determine whether demand can be sustained. By then, retailers will begin planning for the Thanksgiving and Christmas consumption seasons. The textile industry is a leading indicator as mills have months’ lead time on forward orders. As it stands now, the indicator is showing a positive green color. </p
