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High cotton price benefits VSF

Price of cotton went higher than that of VSF recently. Both cotton spot and cotton futures are staying at high level currently. Since quantity offered for sales is less than planned, short availability will sustain before new cotton arrives. (Monthly consumption of 600kt is higher than auction volume of 400-500kt). According to the acceptance of spinners and cotton futures tendency, cotton price is likely to be bolstered at 13,000-13,500yuan/mt.

Meanwhile, 2016/17 cotton production is estimated to reduce by around 15 per cent on falling cotton planting area and flooding in the Yangtze River valley. Given cotton supply reduction and rising commodity market, cotton price is expected to remain high.

VSF market has been pushed up by tight supply and higher cotton price since last Friday. Now the price has touched 13,700yuan/mt and most plants still have pre-sale volume. If cotton futures do not dive, VSF price in Jul may hit new highs since the start of 2016. The operating rate of some spinners and fabric mills may be influenced by G20 Summit in August, but the impact may be partially offset by maintenance of Zhejiang Fulida and increasing orders in the second half of year. The atmosphere of peak season may sustain in Sep-Oct but uncertainties exist afterwards.