High cotton yarn inventories are evolving from a short-term fluctuation into a market norm. As of July 2, finished cotton yarn inventories climbed to 30.59 days, flat month-on-month, far exceeding healthy industry levels. The off-season effect has deepened, with downstream demand showing no clear improvement and restocking limited to essential needs. Cotton yarn consumption by mills is slow, and supply-side pressure continues to accumulate.
Price Game Under Inventory Pressure
An inventory of 30.59 days means textile mills face nearly a month of finished product backlog. Behind this number lies persistently low purchasing willingness from downstream weaving and garment companies. Current restocking is highly concentrated on essential orders, with speculative hoarding virtually absent. High inventories directly suppress spot prices, creating a pattern of shrinking volumes and falling prices in the cotton yarn spot market. To recover cash, mills are forced to offer discounts, but downstream buyers show little interest, forming a negative feedback loop between inventories and prices.
Futures markets simultaneously release bearish signals. The main cotton yarn contract (2611) on the Zhengzhou Commodity Exchange closed at 22,595 yuan/ton on July 2, down 110 yuan/ton from the previous trading day, with trading volume of 1,508 lots and open interest increasing by 677 lots. Rising open interest alongside falling prices indicates that short-side power is accumulating, making it difficult for short-term futures prices to rebound. Under the linkage between futures and spot markets, the bottom for cotton yarn prices has yet to be found.
Supply Chain Transmission Logic
High inventories are not an isolated phenomenon but a concentrated reflection of weak demand across the industrial chain. From upstream cotton to midstream cotton yarn to downstream grey fabrics and garments, every link is experiencing destocking pains. The textile off-season extends from June into July, with high temperatures and rising electricity costs prompting some small and medium-sized weaving enterprises to reduce or even halt production, further cutting their purchases of cotton yarn.
Meanwhile, terminal apparel consumption markets are sluggish, with brands slowing their ordering pace. Foreign trade orders have limited incremental growth due to overseas inflation and inventory cycles. The ceiling effect from the demand side directly transmits to the cotton yarn segment, forming an inventory bottleneck. If mills continue to maintain high operating rates, they will only worsen inventory pressure; if they proactively cut production, they face the dilemma of losing workers and higher fixed-cost allocations.
Market Sentiment Behind the Score
The current cotton yarn bull-bear score stands at -1, reflecting an overall bearish market pattern. On the spot side, supply pressure is high, suppressing prices; on the futures side, bearish sentiment has been partially released but has yet to bottom out. Notably, rising open interest indicates growing divergence between bulls and bears, with some capital beginning to position in forward contracts, believing current prices are close to cost support levels.
However, from a fundamental perspective, the inventory inflection point has not yet arrived. Only when downstream demand shows substantial improvement or mills significantly cut production to reduce supply will inventories begin to decline. Until the off-season effect fades, cotton yarn prices will remain under pressure.
Practical Recommendations
For Buyers - Current cotton yarn spot prices are under pressure; moderate price bargaining is feasible, but beware of quality risks due to mills' cash flow strain. - Adopt a strategy of short-term, high-frequency orders to avoid long-term price locks, taking advantage of price fluctuation windows for phased purchases. - Monitor the basis between futures and spot markets; when the basis widens, consider point pricing to lock in low-cost supplies.
For Cotton Yarn Mills - Actively control operating rates to avoid further inventory buildup from blind production; prioritize existing orders. - Utilize futures tools for hedging to lock in forward sales prices and hedge against inventory depreciation risks. - Adjust product mix toward differentiated, high-value-added yarns to reduce homogeneous competition in conventional varieties.
The off-season will eventually pass, but inventory pressure will not disappear automatically. Textile enterprises must navigate this bottoming period through refined operations and risk management, weathering the industry winter while waiting for the dawn of demand recovery.