Southeast Asian Cotton Yarn Prices Rise: Vietnamese Yarn's Cost Advantage Stands Out, Port Stocks Decline

In mid-July, the Southeast Asian cotton yarn market experienced a broad price rally. Export quotes from Vietnam, Pakistan, India, Bangladesh, Indonesia, and other countries rose to varying degrees, with C32S and above ring-spun, compact, and combed yarns seeing more significant increases in FOB/CNF/CIF prices, while low-count OE and coarse yarns saw more moderate adjustments. This round of price increases is not an isolated event but the result of multiple factors converging.

Drivers: A Triple Squeeze

On the cost side, the rebound in ICE cotton futures in early July directly pushed up mills' raw material costs. Meanwhile, Indian domestic S-6 spot prices and CCI auction floor prices rose sharply over the past week, lifting the cost center for the entire South Asian cotton yarn market. Additionally, escalating geopolitical tensions between the U.S. and Iran, causing disruptions in the Strait of Hormuz, led to another strong surge in crude oil, energy, and chemical prices, and ocean freight costs made a comeback. Mills in India, Bangladesh, and Malaysia had to raise their CNF and CIF quotes to mitigate the combined pressure of rising raw material, production, and transportation costs.

Notably, orders and quotes for second- and third-tier Indian cotton yarn have decreased significantly in July compared to June. Previously, these lower-priced yarns sold quickly, but now suppliers are more reluctant to sell, reflecting expectations of further price strength.

Market Divergence: Vietnamese Yarn's 'Mismatched Advantage'

Amid the overall price increase, Vietnamese yarn has stood out. According to feedback from a large textile import-export company in Shaoxing, inquiries and shipments for Vietnamese yarn in the first half of July were notably better than for Indian, Pakistani, and Uzbekistani yarn. This is primarily due to two key differences:

• **Pace and Magnitude of Adjustments**: Vietnamese mills have been slower to adjust their export quotes compared to other Southeast Asian mills, and the magnitude of increases has been smaller than those of Indian and Pakistani yarn. This keeps the cost-performance advantage of Vietnamese yarn, especially for C40S and below, attractive to price-sensitive fabric mills and traders.
• **Transportation Channel Advantage**: The conflict in the Strait of Hormuz has nearly paralyzed sea routes, causing soaring and unpredictable shipping costs. Vietnamese mills, leveraging road and rail transport, can deliver goods to China more stably and at lower cost, avoiding the volatility of ocean freight.

This 'mismatched advantage' has created a clear market share window for Vietnamese yarn in the short term.

Inventory and Demand: Port Stocks Decline, Rush-to-Export Effect Appears

At the port level, arrivals of Uzbekistani cotton yarn, Pakistani siro yarn, Taiwanese OE yarn, and Indonesian/Vietnamese T/C yarn have weakened over the past half-month. Concurrently, some coastal textile and garment enterprises are engaging in a short-term 'rush to export' to front-run potential trade barriers, accelerating the drawdown of port yarn inventories. The combination has led to a steady decline in port stocks.

What does this inventory change mean for the market? On one hand, declining stocks support the firmness of export quotes, strengthening sellers' bargaining power. On the other hand, if subsequent arrivals fail to replenish in time, it could lead to temporary supply tightness for certain specifications, especially those with notably reduced arrivals.

Practical Recommendations

For Buyers - Seize Vietnamese yarn's cost window: While Vietnamese yarn price increases remain moderate, consider increasing procurement of C40S and below grades to lock in cost advantages. - Assess shipping risks: For Indian, Pakistani, and other sea-dependent cotton yarns, include freight fluctuation clauses in contracts or consider alternative transport modes. - Stagger purchases: As port stocks decline may trigger short-term supply tightness, stagger purchases to avoid concentrated orders driving up prices.

For Foreign Trade Companies - Adjust pricing strategies: Reflect cost changes flexibly in outward quotes based on the varying price increases across origins to avoid losing orders due to weakened competitiveness. - Strengthen Vietnamese supply chain: Prioritize signing short-term price-lock agreements with Vietnamese mills to leverage their transport stability and ensure delivery timelines. - Monitor geopolitics: The uncertainty in the Strait of Hormuz will continue to impact ocean freight; plan logistics routes in advance and leave room for freight volatility.