A recent survey by Textile Excellence reveals, saddled with high levels of inventory due to cancelled orders and dull domestic demand, weavers in China may cut production in May. Additionally, two units of Jilin Chemical Fiber will be shut for maintenance in May for about two months. This will lower operating ratio to 86 per cent-88 per cent.
The survey reveals inventory of weavers is significantly higher than in the same period of past years. This may force many weavers to shut down again for the holidays.
Spot cotton sales were frozen after intensive order cancellation around mid-March, and the situation worsened during the week from April 6-10, when traders basically saw no liquidity and large traders also witnessed dull transactions. From April 13, cotton transactions warmed up somewhat. Despite limited improvement, the downstream buying indication moved up somewhat, and when ZCE cotton futures market declined on April 21 and 22, on-call cotton sales were relatively good. On April 22, there were rumors that China would purchase one million ton of cotton into state warehouses, spot cotton transactions turned thinner again.
Downstream plants have export orders successively from last week, and some delayed orders have also restarted. According to the survey, new export orders are very limited, and domestic sales are also dull. Thus cotton purchases by mills are need based.
As competition is fierce in China’s local market, margins are squeezed, and cotton yarn prices are at a record low. Inventories are high. Most downstream plants worry that domestic demand may turn worse as wages in the country may go down on average, and seasonal demand shrinks.
