The upward trend in cotton prices coupled with stagnant cotton yarn prices is creating a profit squeeze, directly compressing the processing margins for spinning mills. Industry data shows that from June 26 to July 2, the average processing fee for domestic pure cotton yarn C32S fell to 4,652 yuan per ton, a month-on-month decrease of 3.43%. This change is not an isolated incident but a microcosm of the power struggle in upstream and downstream pricing.
Event Background
The cotton market has shown relative strength recently. The main Zhengzhou Cotton 2609 contract closed at 16,125 yuan per ton on July 2, up 30 yuan from the previous trading day, with both spot and futures prices supported by fundamentals. Meanwhile, pure cotton yarn prices remained stable, failing to follow the upward trend. This pattern of 'rising raw materials, stable finished products' directly led to the narrowing of the combed ring-spun C32S processing fee.
Looking at the futures market, a divergence between upstream and downstream is evident. The main Zhengzhou Cotton Yarn 2611 contract closed at 22,595 yuan per ton on July 2, down 110 yuan from the previous day, indicating clear short-term price pressure. This suggests a bearish market outlook for cotton yarn, leaving mills in a dilemma between raw material procurement and finished product pricing.
Industry Impact
The narrowing of processing fees directly compresses the profit margins of spinning mills. For enterprises primarily producing C32S, profit per ton decreases by approximately 165 yuan. If this trend continues, small and medium-sized mills may face cash flow constraints or even losses.
From the perspective of the industrial chain transmission mechanism, the rise in cotton prices should theoretically be passed on step by step through cotton yarn, gray fabric, and garments. However, weak terminal demand has hindered this transmission. Downstream buyers are less receptive to price increases, forcing mills to absorb the rising raw material costs themselves. This essentially reflects the reality that the midstream sector has weaker bargaining power in the current textile chain.
For cotton yarn traders, narrowing processing fees mean both rising procurement costs and downward pressure on selling prices. They need to manage inventory and order rhythms more precisely to avoid being forced to accept orders during price inversions. For foreign trade enterprises, the combination of RMB exchange rate fluctuations and intense competition in overseas order prices further compresses profit margins.
Practical Recommendations
For Buyers - Monitor the cotton-cotton yarn price spread; when processing fees are low, consider extending procurement cycles to wait for mills to offer discounts. - Prioritize cooperation with larger mills with ample raw material reserves, as these enterprises are more resilient to cost fluctuations. - Include price adjustment mechanisms in contracts, such as agreeing to adjust finished product prices when raw material price fluctuations exceed a certain range.
For Foreign Trade Enterprises - Use forward exchange locking tools to hedge against RMB exchange rate risks, preventing exchange rate changes from eroding already thin profits. - When communicating with overseas clients, proactively provide market data on raw material cost fluctuations to advocate for reasonable price fluctuation clauses in quotes. - Adjust order structures appropriately, increasing the proportion of high-count yarn or differentiated yarn varieties, which typically have higher processing fees and larger profit margins.
The narrowing of processing fees is a true reflection of market supply and demand dynamics. Spinning mills must simultaneously adjust their cost control, product mix, and customer strategies to protect their profit bottom line in the current cycle.