The off-season effect is accelerating in the textile industry. Latest industry data shows that for the week from June 26 to July 2, domestic pure cotton yarn operating rates stood at 69.51%, flat from the prior period. While seemingly stable, this figure masks underlying supply-demand imbalances as sales slow and inventories pile up.
Flat Operating Rates Do Not Signal Market Stability
An operating rate of 69.51% is low compared to historical averages for this period. Industry consensus suggests that holding steady is itself an achievement, but the lack of production cuts indicates mills have not yet reached their inventory pain threshold. Once downstream demand contracts further, mills may be forced to reduce output, triggering a stepwise decline in operating rates. Currently, yarn sales are clearly decelerating, and inventory turnover days are lengthening—a direct transmission of the off-season effect.
Futures Market Leads: Price Pressure and Positioning
Data from the Zhengzhou Commodity Exchange offers another dimension. On July 2, the main 2611 contract settled at 22,720 yuan/ton, down 110 yuan or 0.48% for the day. Volume was a mere 1,508 lots, indicating thin trading and widespread wait-and-see sentiment. However, open interest rose by 677 lots, signaling that bearish positions are accumulating, with some capital betting on further weakness. The linkage between futures and physical markets is strengthening. In the near term, the 22,700 yuan/ton level could become a key battleground. If physical inventories continue to rise, futures prices may test lower levels.
Industrial Cluster Response: From Passive to Active De-stocking
Feedback from major producing regions such as Shandong, Henan, and Jiangsu indicates that mills generally report insufficient orders. Some small and medium-sized mills have begun staggered production or shortened shifts. Large enterprises maintain relatively stable operating rates, but finished goods inventories are approaching warning levels. In past off-seasons, mills typically used price cuts to relieve pressure, but this year raw material costs have been relatively stable, limiting room for discounts. This means inventory digestion will rely more on time than price. For downstream weaving and garment companies, this is a window of strong bargaining power, but they should be wary of potential staged price corrections later.
Supply Chain Transmission: From Mills to Fabrics and Garments
The slowdown in pure cotton yarn sales will inevitably ripple upstream to cotton procurement and downstream to fabric processing. On the cotton side, weak buying interest from yarn mills has led to sluggish spot transactions, weakening price support. On the fabric side, pure cotton grey fabric orders are also affected by the off-season, with weaving mill operating rates declining slightly. Further downstream, although export garment orders saw some recovery in Q2 from restocking, they are dominated by quick-response orders that provide limited pull for conventional pure cotton yarn. The entire chain is caught in a negative loop of contracting demand, rising inventories, and cautious production.