The operating rate has fallen below 70%, and the cotton yarn market is undergoing a typical off-season stress test. This week, the average operating rate of domestic pure cotton yarn enterprises dropped to 69.44%, a slight decrease of 0.07 percentage points month-on-month. Although the decline is small, it has hit a low for the year. More notably, downstream sales have slowed significantly, yarn companies' inventories continue to accumulate, and spot market quotations are under pressure.
Weak Supply and Demand: The Divergence Between Operating Rate and Inventory
The current decline in operating rate is not due to voluntary production cuts but is forced by weak demand. Feedback from industrial clusters indicates that downstream weaving enterprises' operating rates are also declining, and their willingness to purchase cotton yarn has dropped to freezing point. To alleviate inventory pressure, yarn companies have had to slightly reduce operating loads, but inventory digestion remains slow. This situation of weak supply and demand is not uncommon in the traditional textile off-season, but the特殊性 this year is that the cost side has not provided sufficient support. Cotton prices are also in a volatile and weak pattern, unable to provide a cost floor for cotton yarn, thus opening up room for price declines.
Looking at the futures market, the main cotton yarn contract 2609 on the Zhengzhou Commodity Exchange closed at 22,540 CNY/ton on July 8, down 70 CNY/ton from the previous day. Both trading volume and open interest are at low levels, indicating that market participants generally hold a wait-and-see attitude towards the future. The weakness of futures prices not only reflects the spot fundamentals but also implies pricing for continued weak demand over the next two to three months.
Price Transmission: A Chain Reaction from End-Users to Yarn Mills
The root cause of cotton yarn price pressure lies in the weakness of terminal apparel consumption. Summer is traditionally an off-season for textiles, with a gap between foreign trade orders and a lack of highlights in the domestic market, leading to reduced procurement in the grey fabric and fabric sectors. This pressure transmits up the industrial chain, ultimately reflected in cotton yarn operating rates and prices.
- Downstream weaving enterprises have high inventories and extremely low replenishment意愿, adopting a purchase-on-demand strategy.
- Yarn mills are forced to make concessions on quotations to compete for limited orders, but price cuts have not effectively stimulated demand.
- Inventory at the trader level is also high, the intermediate reservoir effect fails, further exacerbating the supply-demand imbalance.
This transmission mechanism means that without a significant recovery in terminal consumption, cotton yarn prices will struggle to find substantial support. Even if there is a short-term technical rebound, its sustainability is questionable.
Reactions in Regional Industrial Clusters: Differentiated Inventory and Operating Performance
Looking at major cotton yarn producing areas, operating rates in traditional cotton textile clusters such as Shandong, Henan, and Jiangsu have generally declined, but the magnitude of the decline varies. Some enterprises focusing on high-count yarns or differentiated products have relatively stable operating rates, while those producing conventional 32s and 40s yarns face greater inventory pressure. This indicates that product structure differentiation is intensifying in the off-season environment—companies with technical content and customer loyalty are more resilient, while those with severe homogenization bear the brunt.
The continuous release of Xinjiang cotton yarn capacity also exerts pressure on the inland market. With advantages in raw material costs and energy, Xinjiang yarn maintains certain price competitiveness even in the off-season, further compressing the survival space of inland yarn mills. This regional competition pattern will continue to influence the pricing system of the cotton yarn market in the coming months.
Future Outlook: A Turnaround Possibly at the End of Q3
Overall, the cotton yarn market is likely to maintain a weak trend in July and August. The operating rate may further fall to 68% or even lower, and inventory pressure will be difficult to alleviate in the short term. In terms of prices, spot cotton yarn prices are expected to have another 100-200 CNY/ton downside, and the main futures contract may fluctuate in the range of 22,000-22,500 CNY/ton.
A turnaround may appear around September. At that time, the traditional peak season for textiles will start, and downstream restocking demand is expected to gradually release. However, the strength of the rebound depends on two variables: whether terminal consumption can truly recover and whether cotton prices can stabilize and rebound. If neither materializes, the cotton yarn market may enter a longer adjustment period.