The cotton yarn market is currently navigating a pricing tug-of-war triggered by off-season demand contraction. According to latest industry data, the average operating rate of domestic pure cotton yarn mills fell to 69.44% during July 3-9, down 0.07 percentage points week-on-week. While the decline appears modest, the combination of slow sales and rising inventories indicates that supply-side adjustments have yet to catch up with the pace of order contraction downstream.
Supply-demand dynamics behind the operating rate drop
The operating rate cut is a reluctant move by yarn mills during the off-season, but it also reveals deeper transmission mechanisms. Weaving and garment factories downstream are showing weak purchasing intent, extending yarn delivery cycles and forcing mills to reduce output to ease finished goods inventory pressure. The 69.44% rate, though not historically low, signals a shift toward a weaker capacity utilization range when compared to the same period last year.
On the cost side, cotton raw material prices have not fluctuated sharply, but profit margins are being squeezed by inventory holding costs and fixed expenses. For small and medium-sized mills, sustained low operating rates mean slower cash flow turnover, and some may face the risk of further output cuts or even shutdowns.
Futures market mirrors bearish expectations
The main cotton yarn contract (2609) on the Zhengzhou Commodity Exchange closed at 22,540 yuan per ton on July 8, down 70 yuan from the previous session, with trading volume of 18,979 lots and open interest of 14,652 lots. The concurrent drop in price and volume suggests market participants hold a broadly bearish view on short-term prospects. The futures weakness is not an isolated event; it directly mirrors spot market softness and provides a lower psychological anchor for spot pricing.
Notably, open interest remains relatively high, indicating that the divergence between bulls and bears has not quickly resolved despite the price decline. Some bears are betting that the off-season effect will persist, while bulls may be waiting for fall/winter orders to pick up or policy support to emerge. This standoff itself adds to price uncertainty.
Regional industrial clusters and channel inventory chain reactions
Sample mills in major producing regions like Shandong, Henan, and Jiangsu generally report slower sales. Downstream fabric mills and dyeing units are also operating at low rates, creating a chain reaction from yarn to fabric. Channel inventory digestion cycles are lengthening, and some traders are actively destocking at lower prices, further compressing yarn mills' pricing power.
For buyers, the current market exhibits a 'buyer's market' character, but purchasing decisions face a dilemma: waiting for lower prices risks missing the window for bargain restocking, while early procurement carries the risk of inventory depreciation and capital tie-up.