Off-season impact persists; cotton yarn demand remains weak
The pure cotton yarn market in China remained under off-season pressure last week. Trading activity was limited due to weak downstream demand, and prices for major yarn varieties saw no significant changes. As of August 7, the reference ex-factory spot price for 21S ring-spun pure cotton yarn in Shandong stood at 23,300 RMB/tonne, while 32S yarn was priced at 24,675 RMB/tonne; both prices remained stable compared to the previous week.
Despite fluctuations in domestic cotton prices, most textile mills kept yarn prices steady and focused on reducing inventory. Amid rising raw material costs, mills exercised caution in purchasing, buying primarily on an as-needed basis. The price for 32S pure cotton ring-spun yarn was 23,500 RMB/tonne in Xinjiang and 23,600 RMB/tonne in China's inland regions.
Weakness was also observed in the downstream weaving industry. Capacity utilization dropped to approximately 72% in Jiangsu, Zhejiang, and Shandong, while in Foshan, Guangdong, it temporarily fell to 20%. Procurement of grey fabric was largely limited to small, urgent orders.
Limited adjustments in cotton and yarn prices increased pressure on spinning mill margins. As of August 6, spinning margins stood at -391.93 RMB/tonne in Xinjiang, while in China's inland regions, they fell to -1,753.13 RMB/tonne. High inventory levels and weak sales intensified operational pressure on companies, particularly regarding medium- and high-count yarns.
The market is currently receiving mixed signals. Concerns that high temperatures in Xinjiang might impact the boll-setting stage of the new cotton crop have provided support to prices. On the other hand, the continued sale of government reserve cotton has alleviated supply-related concerns. The likelihood of a sharp rise in cotton yarn prices in the near term is limited due to weak global end-demand, a slow recovery in export orders, and a lack of improvement in the domestic market. Prices are expected to remain range-bound with a weak undertone.
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