Price spread between spot and forward imported yarn widens further after the holidays

After 2022 Spring Festival holidays, some traders began to resume work in Feb 8. The imported cotton yarn traders in Guangdong basically returned to work near Feb 10, but the market still stagnated. Cotton futures got off to a flying start, and forward imported yarn prices rose sharply during the holidays, so imported cotton yarn prices also increased. Overall price of spot imported cotton yarn increased by about 400-1,100yuan/mt compared to that before the holidays.

The strong points of the spot imported yarn price rise were mainly based on following aspects

First, the spot was in tight supply. Except for February, the three months with the lowest cotton yarn imports in China in 2021 were October, November and December, and the monthly imports were 140, 143 and 131kt, respectively. However, in end-Jan, in order to avoid the Spring Festival holidays, most traders adjusted the time of arrivals from Jan to early-Feb. And due to the long-term large price spread between spot and forward imported yarn, replenishment at the end of the year reduced compared with previous years, so it is expected that the cotton yarn import in Jan 2022 will be lower than that in Dec 2021, the lowest in 2021. In particular, the orders of Indian yarn was small. China imported 318,000 tons of cotton yarn from India in 2021, down 6.7% compared with 2019. And the Indian yarn carded 16S and 21S saw tight structural inventory.

Second, the price of forward imported yarn rose sharply, and spinners were reluctant to undersell stocks. During the Spring Festival holidays, foreign yarns generally rose, of which the price of forward Pakistani yarn increased the most. Taking the second-lined Pakistani siro-spun C10S as an example, the price rose from $3.30/kg to $3.75/kg, and up 3,200yuan/mt after the holiday in RMB. According to the current market quotation, the price spread of Indian yarn and Pakistani yarns was very large. Spot Indian C32S for weaving, contamination controlled, was 4,000yuan/mt lower than the forward, spot Pakistani siro-spun C10S was 2,800yuan/mt lower than the forward, and spot Vietnamese C32S for weaving, contamination controlled, was 1,400yuan/mt lower than the forward. Therefore, traders were more hesitant to undersell stocks or even tentatively quoted up. If the buyers gradually came to be more accepting of the prices, imported cotton yarn prices may further rise.

Third, cotton futures got off to a flying start. The main contract of ICE cotton futures rose during the Spring Festival. ZCE and domestic cotton yarn got off to a good start, which to a certain extent supported the price of imported cotton yarn.

All in all, a good start to cotton boosted the market's bullish expectations towards the post-holiday market in the short term, and the high forward imported yarn price made it possible for the spot price to rise further. But at present, although the price of imported cotton yarn has risen, the price is nominal and orders from downstream market has not improved significantly. And the mills that has been reopened is still cautious to replenish stocks. Whether imported cotton yarn can further rise needs to further observe the downstream mills orders and operating rate.