In the first week of July, the operating rate of China's pure cotton yarn industry dropped to 69.44%, down 0.07 percentage points month-on-month. This seemingly small figure emerges against a backdrop of persistently weak downstream demand and slow sales for yarn enterprises. Inventory pressure is now transmitting from yarn mills to upstream sectors, putting obvious pressure on cotton yarn spot prices.
This off-season impact did not come suddenly. Since late June, the purchasing willingness of downstream weaving enterprises has weakened significantly, with cotton yarn traders also adopting a wait-and-see attitude. To alleviate inventory pressure, some mills have proactively reduced operating loads, pushing the industry's overall operating rate into a downward channel.
Weakness on Both Supply and Demand Sides
On the supply side, inventory pressure at pure cotton yarn mills continues to accumulate. Due to slower sales, the days of finished product inventory have increased, with some mills even facing the risk of overstocking. To control inventory levels, mills have had to slow production, which is directly reflected in the operating rate data.
The demand side is even more severe. The current period is a traditional off-season for textiles, with downstream orders for apparel and home textiles entering a lull. The operating rate of weaving enterprises is also low. Cotton yarn purchases are mainly small urgent orders, lacking bulk transaction support. This supply-demand weakness leaves cotton yarn prices with little upward momentum.
Futures Market Confirms Fundamental Weakness
The main cotton yarn futures contract (2609) on the Zhengzhou Commodity Exchange closed at 22,540 yuan per ton on July 8, down 70 yuan from the previous day, with a volume of 18,979 lots and open interest of 14,652 lots. From the market performance, trading sentiment is bearish, with futures prices resonating with the fundamentals.
The weak performance of the futures market is actually an early reflection of the spot market's sluggishness. When spot inventories are high and demand is low, futures bulls lack confidence to push prices up, while bears dominate. This spot-futures linkage means that a trend reversal in cotton yarn prices is unlikely in the short term.
Notably, open interest in cotton yarn futures remains relatively high, indicating ongoing divergence between bulls and bears. Some capital may be betting on a demand recovery by the end of the third quarter, but for now, the off-season effect remains the dominant force.
Industry Impact and Transmission Channels
The decline in operating rates has already fed back to the upstream cotton market. Cotton purchasing has slowed, with mills mainly digesting existing inventories and showing weak willingness for new purchases. This puts pressure on cotton spot prices as well, creating sales challenges for cotton farmers and traders.
For downstream weaving enterprises, the current weakness in cotton yarn prices offers an opportunity to replenish inventories at lower costs. However, most enterprises are choosing to purchase on demand rather than building positions aggressively. This cautious attitude reflects market uncertainty about the strength of future demand recovery.