Recently, the cotton spinning industry seems to be experiencing a cold wave. The production and sales of finished products are not as good as in previous years, inventory has increased, and profits are limited. At the same time, the raw material market has become more deserted, and Xinjiang cotton sales have been slow. Entering 2022, what is the operating situation of cotton textile companies? How do you view the market outlook?
Prices continue to weaken, corporate profits are limited
Before October 2021, the prices of cotton and cotton yarn hit a new high in the past ten years. However, from October 2021 to now, as the growth of demand continues to slow down, the price of cotton yarn has been oscillating downwards.
Data shows that on December 24, 2021, the national average price of carded high-quality 32-count pure cotton yarn was 28,650 yuan/ton, a decrease of 8.49% from the average price in October. Affected by factors such as repeated epidemics at home and abroad, high cotton prices, and rising sea freight, domestic and foreign trade orders are not profitable, and textile companies are not very enthusiastic about taking orders. In addition, yarn and cloth inventories have accumulated to high levels. In late December, some textile companies began to reduce prices. load, only a small amount of cotton is in stock. The Spring Festival is less than a month away, and the Winter Olympics are about to be held. Some textile companies plan to take a holiday in advance for the holiday.
According to an employee from a textile company in Jiangsu, customers are currently generally pessimistic about the market outlook. Yarn profits are low and production and sales are in trouble. The company’s current raw material inventory remains at more than 2 months, and product inventory continues to increase. Downstream fabric factories and other factories have large inventories. As the new year approaches, companies are actively destocking and are cautious about purchasing yarn raw materials.
According to the personnel of the company, the purchase of new cotton spinning yarn at this stage is a loss. Because it uses the cotton purchased at low prices before, the company’s production and sales costs are just the same. With the decline in cotton inventory, once new cotton is completely used in the future, according to the current yarn price Settlement will result in losses. In order to reduce risks, companies have reduced their operating rates, resulting in a monthly yarn output drop of about 30%, and plan to extend the holiday during the Spring Festival to cope with production and marketing difficulties.
Regarding the future trend of cotton prices, the person said that downstream production and sales continue to slow down before the Spring Festival, and the industry does not support the continued rebound of cotton prices. First, the new year is approaching, and corporate funds are tight; second, a large amount of cotton resources are concentrated in ginning. If enterprises continue to raise prices, it will just give ginning enterprises a hedging opportunity, especially since the sales volume of new cotton in 2021/2022 will be less than 1 million tons, and the social inventory is very large, and funds will not risk entering the market. As for whether there will be changes in the future, it depends on the extent of inventory consumption.
Industry insiders said that under the condition that cotton yarn production and sales prices are upside down and sales are temporarily hindered, the cotton spinning industry is relatively pessimistic. On the contrary, the trend of Zheng cotton is not consistent with it. In fact, the temporary deviation between the fundamentals and the trend of Zheng cotton is normal. After all, futures prices are affected. There are many factors, and fundamentals are only one factor that affects prices.
Cotton sales are slow and inventory pressure is high
In terms of raw materials, some cotton supervision warehouses in Xinjiang have reported that the recent inventory pressure has increased significantly compared with November 2021. Coupled with the cooling and precipitation weather, the declaration of warehousing, loading and unloading, and outbound storage have been affected to a certain extent. Some warehouses no longer have excess storage capacity.
Since mid-October 2021, Xinjiang’s cotton road shipments have been relatively sluggish, and the progress of lint cotton transfers lags behind that of 2020/2021. The main reason is that the sales progress of lint cotton is slow, and cotton traders and cotton spinning mills are not enthusiastic enough to enter the market for procurement. In addition, after September 2021, new cotton with an impurity content higher than 3.5% cannot be registered for warehouse receipts. There is no good hedging opportunity for superimposed new cotton. Therefore, the storage pressure of Zheng cotton delivery warehouse in Xinjiang is actually lower than that of most non-delivery warehouses. library phenomenon.
According to a survey by the National Cotton Market Monitoring System, as of December 23, 2021, the national lint cotton sales rate was 16.2%, a year-on-year decrease of 22.1 percentage points, and a decrease of 15.3 percentage points from the average of the past four years; of which Xinjiang cotton sales progress was 15.2%. Why is Xinjiang cotton sales progress slow in 2021/2022? Industry experts analyze the reasons as follows:
First, a large amount of cotton reserves will be rotated out in 2021. While effectively ensuring the demand of cotton-using enterprises, it will delay the replenishment of new cotton by cotton textile mills in 2021/2022; second, the cost of cotton in Xinjiang is high, and it is estimated that the cost in storage reaches 23,000 yuan/ton. ~24,000 yuan/ton, and the current price difference of cotton futures has also reached 1,000 yuan/ton~2,000 yuan/ton. Therefore, cotton processing companies cannot accept the basis price quotations given by traders, and it is difficult to complete transactions, prompting traders to only use “fixed price” “Purchase high-index lint cotton to achieve hedging; thirdly, the sales of Xinjiang cotton with impurity content higher than 3.5% has become a problem because warehouse receipts cannot be registered. Unless there is a cotton spinning mill customer to receive the goods, traders will inquire and receive the goods. The willingness is very low; fourth, local epidemics have recently occurred in Jiangsu, Zhejiang, Shaanxi and other provinces, and various regions have stepped up epidemic prevention and control efforts. Drivers’ willingness to travel to Xinjiang is relatively low, which has affected cotton sales and transportation in 2021/2022 to a certain extent.
Experts believe that from the perspective of raw materials, more than half of Xinjiang’s new cotton is processed, but the sales progress is slow, so the cotton supply will still be loose in the later period. However, the processing cost of Xinjiang lint cotton is significantly higher than the futures price, and ginning companies are unwilling to sell spot lint at low prices. . From the supply side, demand in the downstream market is weak and finished product inventories are high. As the Spring Festival approaches, some textile companies have reduced their operating loads. From the demand side, there is still demand for stocking in the downstream in the short term. Downstream demand may increase around New Year’s Day, but the stocking volume is expected to be less than last year. At present, the main contradiction in the market is that cotton price increases are difficult to transmit smoothly downstream, and orders from textile companies have increased.There is a loss, so the market outlook should pay close attention to cotton prices and downstream order transmission.
Due to the recurrence of the epidemic, high raw material prices, downstream companies are not active in stocking, and the accumulation of cotton yarn in warehouses is accelerating. In addition, as the Spring Festival approaches, cotton spinning companies actively withdraw funds from their warehouses. It is expected that cotton yarn prices may be weak in the short term. Because cotton is “strong” and cotton yarn is “weak”, the profit losses of new cotton spinning may deepen, and textile companies may have a holiday about a week in advance.
After the Spring Festival, the market will usher in a rush period for spring and summer clothing orders, and imported cotton quotas will also arrive at factories one after another. Some textile companies believe that the epidemic in Southeast Asia is more serious, and foreign orders are still expected to return to China in 2022. In addition, the traditional peak seasons of gold, silver, and silver are coming. , it is expected that the domestic cotton yarn market is expected to pick up. Experts said that in 2022, we should focus on changes in Sino-US trade relations, epidemic dynamics, cotton price trends and downstream orders.
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