The situation in the textile industry has basically become clear in the last month of this year. The epidemic has recurred in many places, especially in the south. Most textile companies are pessimistic about the market outlook. As the end of the year approaches, the “Little Indian Summer” of stocking up for the post-holiday holidays has come to nothing, and downstream demand has still not improved. In some parts of the south, under the influence of the epidemic, the operating rate has continued to decline, and there is a continued downward trend. There are also some bosses who are still watching the market outlook, hoping that the clouds will clear and the moon will shine, and a golden market outlook will emerge. However, the strict control caused by the epidemic has made the market outlook even more gloomy. Now that the market is deserted and epidemics are recurring, there may be an increase in the trend of early holidays for downstream industries.
Cotton—The difference between cost and psychological price is 2,000 yuan
After the National Day holiday last year, the experience of a sharp increase in cotton prices due to the reshoring of orders caused by the external epidemic once caused greater exposure risks in downstream production and stocking. This also led to ginners stocking up in advance this year. The newly built processing plants and rising contract fees have made Xinjiang’s cotton processing plants have an increasingly serious problem of not having enough to eat. The commissioning of many ginneries corresponds to the huge production capacity, which has led to the rush to harvest new cotton from expectations to reality, coupled with the increase in planting costs. Cotton prices have been rising step by step, much earlier than the same period last year. This has become the dominant factor in the cotton and cotton yarn market trends in the past two months. Behind the rush is more than 10 million tons of seed cotton and more than 20 million tons of ginning capacity. There is a serious mismatch between cotton, the sales rhythm of high-cost cotton and the risks in the middle and lower reaches of the market will increase.
Currently, under the situation of high costs and weak demand, there is a rupture in the purchase and sale of cotton spot market. Upstream and downstream companies hold different opinions, and the market has entered a stalemate stage. This situation may remain for some time. The high processing costs of ginning enterprises have solidified, and the gap with the current market price is too large, which not only causes manufacturers to face widespread losses, but also discourages downstream markets.
According to feedback from many cotton manufacturers, the production cost of lint in 2021 is mostly around 23,000 yuan/ton, but the current raw material prices acceptable to spinning companies are mostly in the range of 21,000-21,500 yuan/ton. In previous years, most production companies were able to successfully unwind their spot inventories after futures prices gave him hedging opportunities. However, this year’s spot market was severely fragmented, causing ginning companies to lose shipping opportunities. Moreover, the Zheng cotton contract was strong in the near future and weak in the far range. This makes cotton enterprises feel that there is little hope.
Downstream sluggishness and poor demand have hindered the rise in cotton prices, making it difficult for downstream terminal consumers to undertake high-cost textiles and clothing, and the industrial chain continues to put pressure on the upstream. With the growth rate of global cotton consumption gradually peaking, the willingness of textile companies to purchase new cotton has been further suppressed, making it difficult for new cotton prices to be transmitted downstream and increasing market risks.
Downstream demand shows no improvement
The current gray fabric market continues to be weak. The overall market demand is not good, and weaving mills are not willing to stock up. Most weaving mills in Lanxi area report that orders are bleak and inventory is high. Some weaving mills have cut prices to remove inventory, but the transactions are still poor.
In previous years, around New Year’s Day, textile companies usually stock up to meet the demand for cotton during the Spring Festival holiday, but this year there is little news.
First, due to the constraints of weak domestic and foreign textile terminal consumption, product inventory levels in the textile and apparel industry continue to rise, textile companies have insufficient follow-up on orders, and the motivation to restock raw materials has declined.
Second, the price difference between domestic and foreign cotton is too large. During the process of placing some foreign trade orders, domestic production costs are high and bidding power is reduced, forcing orders to be lost, and textile companies shift their purchasing focus to foreign cotton.
Third, the emergence of the Omicron mutant strain has added more variables to the development of the epidemic. The mentality of the domestic and foreign textile markets has tightened, resulting in a decline in consumption expectations.
The global epidemic situation is severe
The global epidemic situation seems to be getting serious again. As of now, a total of 273.9 million people have been diagnosed and 5.351 million people have died. The United States is particularly miserable, with more than 50 million confirmed cases and more than 800,000 deaths. The Omicron virus strain has made the United States even worse. The number of confirmed cases in the United States will rise sharply in the next few weeks, reaching 1 million per day, which is four times higher than the 250,000 per day at the peak of the epidemic in January this year. The rapid spread of the epidemic in Europe and the United States has once again challenged the economic recovery process.
The recurrence of epidemics in many places in China is indeed frightening.
The market is worried that the sudden severity of the epidemic situation may have an impact on the textile industry.
Demand recovery due to epidemic impact
From a macro perspective, the outbreak of new mutant viruses at the end of November has undoubtedly increased the difficulty of demand recovery and overall external risks, affecting global economic recovery. The global epidemic continues one after another, and economic recovery is under pressure. During the epidemic period, clothing consumption and export demand will gradually enter the off-season and slow down, thus affecting textile and clothing consumption. In the U.SAgainst the background of a serious outbreak of the epidemic, in the stage of economic decline in various countries, and under the complex premise of reshuffling the international political and economic landscape, Sino-US trade relations and international relations will become more dangerous in the future. It is still necessary to observe the possible suppression of Xinjiang cotton ban export demand situation.
Affected freight, global order recovery slows down
Affected by the epidemic, a supply chain crisis is emerging in the United States and is affecting the world. Currently, a large amount of goods are backlogged at ports and unable to enter the U.S. supply chain. Prolonged port congestion not only disrupted the supply chain, causing a large number of goods to be out of stock, and a large number of factories to slow down or even stop production, it even affected the recovery process of global orders. The United States is my country’s main clothing exporter and performed strongly in the first three quarters of this year. The policy subsidies adopted by the U.S. government during the epidemic significantly increased residents’ income and boosted clothing demand. However, high inflation expectations next year will limit the implementation of the U.S.’s active fiscal policy. The growth rate will slow down after the subsidy measures expire, and there is a possibility of peaking and falling next year, which is not conducive to the recovery of the cotton textile industry next year.
Influence downstream mentality
The epidemic situation in many places in China has affected the mentality of downstream companies. As the end of the year approaches, traders are selling to withdraw funds and have a strong wait-and-see attitude towards the market outlook. Recently, the spot price of cotton yarn has dropped by 200-500 yuan/ton, but the spot transaction is still weak, and the cotton yarn inventory of textile enterprises continues to accumulate.
Corporate holidays are brought forward and holiday hours are extended
Companies in the north and south have moved forward their holidays and extended their holidays. It is understood that it has been very difficult for cotton companies to sell recently. Cotton inventory has remained at 1 month, while cotton yarn inventory has remained at 2 months, which is much higher than the same period in previous years. In order to control risks under the conditions of difficult sales and bulging product inventories, companies have suspended raw material procurement and reduced capital occupation. Some companies plan to arrange holidays at the end of this month. In previous years, the holiday period was at most half a month during the Double Festival. This year, the holiday period is expected to be about two months.
With the unexpected outbreak of the Omicron epidemic again, the time and space for the global textile market to fully recover has once again been delayed and compressed. On December 22, Zhejiang Province held the 96th press conference on COVID-19 prevention and control. At the meeting, it was announced that Shangyu District, Shaoxing City had achieved the goal of clearing the community, and the epidemics in Hangzhou and Ningbo had entered the clearing stage. This round of epidemic spread Risks have basically been controlled. The epidemic in Zhejiang Province has entered the final stage, which has also given a boost to the recovery of the market.
In the short term, with the domestic and foreign market demand weakening, it is difficult for the textile market to recover significantly before the Spring Festival; after the Spring Festival, as companies’ efforts to stock up before the year have significantly weakened, there are conditions worth looking forward to for the recovery of domestic textile market demand. In the long run, it is only a matter of time before the global epidemic is resolved next year, and the long-term trend of the international textile market is still good.
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