In early July, China's pure cotton yarn market entered the deep waters of the traditional off-season. According to publicly available industry data, the average operating rate of pure cotton yarn enterprises this week (July 3-9) dropped to 69.44%, a decrease of 0.07 percentage points month-on-month. Although the decline is modest, it reflects a growing willingness among producers to voluntarily reduce output amid persistently weak demand.
On the futures side, market sentiment is also bearish. The main contract for cotton yarn on the Zhengzhou Commodity Exchange (ZCE) closed at 22,540 yuan/ton on July 8, down 70 yuan/ton from the previous trading day. Trading volume and open interest stood at 18,979 lots and 14,652 lots, respectively, indicating low market activity. The simultaneous weakening of both spot and futures markets suggests a lack of confidence in a short-term price rebound.
The Industrial Logic Behind Weak Supply and Demand
The core challenge facing the cotton yarn market is sluggish downstream demand. Yarn mills generally report slow sales and increasing inventory backlogs. The reduction in operating rates is a passive response to inventory pressure, but the current level of 69.44% remains in the neutral range, indicating that a large-scale production halt has not yet occurred.
From the perspective of the industrial chain, the low purchasing willingness of downstream weaving and garment enterprises is mainly due to weak terminal consumer demand and capital turnover pressure. Fluctuations in upstream cotton prices also disrupt cost support for cotton yarn, but at this stage, demand-side factors play a more dominant role in price determination.
The performance of the futures market further confirms the weakness of the spot market fundamentals. Futures prices have been declining continuously, with no significant increase in open interest, suggesting that both speculative funds and hedging positions are adopting a wait-and-see approach. Once this balance of power is broken, the downward elasticity of prices is likely to increase.
Differentiated Responses Across Regional Industrial Clusters
In major cotton yarn producing regions such as Shandong, Henan, and Jiangsu, operating rates vary significantly. Some large enterprises maintain operating rates above 70% due to relatively stable orders, while small and medium-sized mills face greater survival pressure, with many resorting to production cuts or even shutdowns.
In downstream weaving clusters like Shengze and Nantong, the grey fabric market is also experiencing simultaneous declines in both volume and price. Fabric buyers have reduced their frequency of inquiries for cotton yarn and are more aggressive in price negotiations. This synchronized weakening of upstream and downstream links is unlikely to see substantial improvement in the short term.
It is worth noting that the growth of new cotton in the Xinjiang region is favorable, and the market holds a relatively optimistic outlook for next season's cotton production. If new cotton supply increases upon harvest, it will further weaken the cost support for cotton yarn and exacerbate the risk of price declines.
Price Expectations and Operational Strategies
Considering both supply and demand factors, cotton yarn prices are expected to remain under pressure from late July to early August. If operating rates continue to decline to below 68%, it may trigger more enterprises to actively destock, leading to an accelerated price drop. Conversely, if downstream orders show an unexpected recovery, prices may find support around 22,500 yuan/ton.
From a seasonal perspective, late August to September is typically the start of the autumn and winter fabric stocking period, which could bring a phased increase in demand for cotton yarn. However, given the current macroeconomic uncertainties, the stocking intensity may be weaker than in previous years.