Cotton and cotton yarn, one being raw material and the other a semi-finished product, exhibited sharply contrasting price movements this week. The weekly average price of cotton rose significantly, with the main Zheng Cotton contract 2609 closing at 16,125 yuan per ton on July 2, up 30 yuan from the previous day, supported by both spot and futures markets. Meanwhile, although the price of pure cotton yarn remained nominally stable, the average processing fee for carded ring-spun C32S dropped to 4,652 yuan per ton, narrowing by 3.43% week-on-week. This divergence signals that the actual profit margins of spinning mills are being squeezed, rather than a simple cost pass-through.
Signals Behind the Data
The narrowing processing fee directly reflects the gap between rising raw material costs and stagnant yarn selling prices. Cotton prices are rising, but yarn prices are not moving, forcing mills to absorb the incremental cost. This week's data shows that the main Zheng Cotton Yarn contract 2611 closed at 22,595 yuan per ton, down 110 yuan from the previous day, with the futures market already sending a bearish signal. The linkage between spot and futures prices indicates that downstream weaving and end-user demand are not synchronized with upstream price increases, limiting the market's capacity to absorb higher yarn prices.
From a regional perspective, spinning mills in key production areas such as Shandong, Henan, and Jiangsu are generally facing the dilemma of rising raw material inventory costs and stagnant finished product sales prices. Some small and medium-sized mills have begun to adjust operating rates, reducing production without orders to avoid inventory devaluation risks. This phenomenon is unusual for this period, as June-July is typically a transition between low and peak seasons, but this year's cost fluctuations exceed seasonal expectations.
Root Causes of Price Divergence
The divergence between cotton and cotton yarn prices reflects two different pricing logics. Cotton prices are influenced by global supply-demand dynamics, weather conditions in major producing countries, import quotas, and reserve cotton releases. The recent uptick is mainly driven by international expectations of tighter supply, with changes in planting area and yield data in the United States and India. In contrast, cotton yarn prices are more constrained by domestic downstream consumption patterns, where the recovery pace of end-use garment orders has not matched upstream price increases.
This means that cost-push price hikes are difficult to pass down the supply chain at this stage. Mills face a dilemma: either maintain yarn prices to retain customers, sacrificing their own profits, or raise prices to pass on costs, risking order losses. The narrowing processing fee data suggests that most enterprises have chosen the former, reflecting cautious market sentiment regarding demand elasticity.
Implications for Procurement and Inventory Strategies
For spinning mills, current cotton prices are relatively high with upward support, but yarn demand has not yet shown strong momentum. This means blindly building raw material inventory at these levels carries risks—if cotton prices correct or terminal orders disappoint, high-cost raw materials will directly translate into losses. A prudent strategy would be to shorten procurement cycles and adopt a just-in-time purchasing approach, avoiding concentrated stockpiling at high prices.
Additionally, the narrowing processing fee highlights the need for refined cost control. Optimization of details such as cotton blending ratios, waste rates, and power consumption can determine a company's break-even point when margins are thin. Some large enterprises have already begun using futures tools for hedging to lock in processing margins, a practice worth emulating by smaller mills.