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What’s the reason behind limited decline of cotton yarn upon slump of cotton
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What’s the reason behind limited decline of cotton yarn upon slump of cotton

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What’s the reason behind limited decline of cotton yarn upon slump of cotton?

Firstly, when cotton price moved up previously, cotton yarn did not follow up. According to CCFGroup, cotton market rebounded from mid-Jun, but cotton yarn stayed in downtrend until last week when some conventional carded ones partly climbed up with most varieties stable, and cotton yarn mills reduced discounts. No ups, so no downs.

Secondly, the inventory was effectively consumed after the sales of conventional cotton yarn turned better last week and currently it does not have high pressure except combed ones and high-count ones.

Thirdly, the profits of cotton yarn have not recovered. At present, cotton yarn mills using state reserved cotton can obtain thin profits or achieve breakeven at least. But the volume of state reserved cotton is not large and cotton yarn mills use limitedly. At present, most spinners are at a huge loss. For example, the loss of carded 32S reaches about 500yuan/mt. With thin profits, cotton yarn mills are reluctant to lower offers.

The major contradiction on the market is still concentrated on the weak end-user demand and high inventory pressure. If the inventory pressure on downstream players does not alleviate, the upstream will be hard to rebound. The decline of ZCE cotton futures is in expectation, but the limit down is beyond expectation indeed. Cotton yarn price is likely to weaken again later upon bearish cotton, especially combed ones and high-count ones, but it may not decline much.

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