Yarn market situation
Local spinning mills are booked forward and some are even booking the rest quantity of April’20 delivery. Now 100% cotton Ne 30/s card knit yarn now is selling at USD 2.95-3.05 per kg. So, 100% cotton spinning mills are now operating with too good margin.
But as cotton price has gone down by another 7-8 cents per lb (Now at 15:52 Bangladesh time on 13-03-2020 ICE July’20 is selling at 60.30), and spinning market is competitive, it is most likely that yarn price would go down by 15-20 cents per kg by next month. However, bottom line is to operate with a philosophy that ensures win-win situation across the clothing value chain with the rapid changes resulting from the global healthcare pandemic.
Coronavirus and its impact on textile in China
China is the leading textile manufacturer in the world. The cotton consumption in China has harshly been affected as spinning mills operation was shutdown or cut down since Coronavirus outbreak in China.
Due to the effect of Coronavirus the cotton gray fabric production was also affected.
Oil price
Oil prices crashed on 9th March, suffering the biggest daily loss since the 1991 Gulf War, sparked by the collapse of an OPEC supply agreement that now threatens to overwhelm the world with oil.
S&P 500 Index
The slump in oil price and heightened fear of a global reassertion due to virus outbreak caused the benchmark S&P 500 Index to tumble 7%, temporarily halting the trading.
The ‘Buffet Indicator’ which compares the Wilshire total market capitalization to US GDP was at all time high at 157% in early February this year, easily surpassing the dot.com bubble peak of the late 1990s. It is still at 140% and significantly overvalued by 35-40%.
The stock market bubble which was mainly fueled by ultra-cheap money, stock buy-backs and indexing, has masked what was going on in the real economy and lulled many investors into a false sense of security.
Bottom line is to operate with a philosophy that ensures win-win situation across the clothing value chain with the rapid changes resulting from the global healthcare pandemic.
ICE Index
S&P Index and oil price has impacted ICE cotton index to further go down by 7-8 cents, reaching 59-60 cents per pound. As a matter of fact, ICE Cotton Index volatility is more linked with global demand for clothing with the outbreak of Coronavirus, cotton import demand from China, cotton plantation by major producers, weather, fund movement and currency.
Fixation strategy
ICE would remain volatile with the changes of plantation intentions of different countries, world demand for cotton and the changes of weather in the coming months. But the key to the trend of ICE lies with the import demand of cotton from China and the recovery of global clothing demand and economy.
So, mills may fix the immediate shipments at the current level. For the future shipments of 2019/2020 crop may fix at the current level with some distant puts. For the 2020/2021 crop, look to fix the price at the current level of some percentage of total quantity if available at a suitable level.
