Since May, cotton prices have continued to fall, falling by more than 30% so far, significantly exceeding the decline in cotton yarn futures during the same period, which has relieved textile companies that have been plagued by high-priced raw materials.
The reporter learned that since this year, textile companies have been “constrained from both ends.” As cotton prices have fallen recently, business pressure has eased. Industry insiders predict that under the loose supply and demand situation, textile companies are expected to see improved operating performance.
Textile enterprise profits have improved
“Production profits have improved.” A person from a cotton spinning company told reporters, but due to the large amount of inventory accumulated in the early stage, sales of inventory are currently the main focus, and there is no plan to increase production load.
Wenhua Finance data shows that as of the close of July 27, the main cotton futures contract was trading at 14,845 yuan/ton, down 32.6% from the high of 22,035 yuan/ton on May 5; the main cotton yarn futures contract was down from the high point this year. 26.5%.
The reporter learned from many industry insiders that as cotton prices fell, textile companies’ production profits improved. However, new orders are limited, and textile companies generally face problems such as devaluation of finished goods in stock and difficulties in sales.
“In the early days, when cotton was around 22,000 yuan/ton, textile companies suffered large losses.” A market source said, “Even if there is an improvement now, textile companies still face losses in the actual operation process.”
“The industry is in the off-season, with a lack of orders, inventory levels and operating rates are not ideal.” Cao Yuan, a cotton analyst at Melya Futures, told a reporter from China Securities Journal.
“Cotton prices have fallen sharply in recent months, causing textile costs to trend downward. However, new orders are insufficient, finished product inventories are high, and corporate confidence is still sluggish.” Fang Huiling, a senior agricultural product analyst at Orient Securities Derivatives Research Institute, told China Securities Journal the reporter said.
Limited upstream and downstream bargaining power
Cotton accounts for the largest proportion of the cost structure of cotton textiles. Taking cotton yarn as an example, cotton accounts for about 70% of its production costs.
“For textile companies, the cost of cotton is basically determined by the purchase price of seed cotton in October every year.” Wu Xinyang, a cotton spinning researcher at CITIC Futures, told reporters, “The high costs currently faced by textile companies are mainly due to the dissatisfaction with seed cotton in October last year.” It was caused by rational panic buying, even though the downstream consumption was already declining at that time.”
Taking C32S pure cotton yarn as an example, Cao Yuan calculated an account for reporters: “1 ton of yarn requires 1.1 tons of cotton. According to the current spot price, the raw material cost of a ton of yarn is 17,420 yuan, and the cotton yarn price is 25,420 yuan/ton.” Cao Yuan Said, “Another important cost is labor expenditure. Textile is a labor-intensive industry. Currently, many companies report that it is difficult to recruit workers, resulting in rising labor costs.”
From the perspective of the cotton textile industry chain, its upstream is mainly concentrated in Xinjiang, and Xinjiang cotton accounts for almost 90% of the country’s cotton production; midstream enterprises mainly include cotton spinning, weaving, printing and dyeing, most of which exist in the form of industrial clusters; downstream enterprises mainly include clothing Manufacturing and terminal retail. Looking at the layout of midstream enterprises, “cotton spinning enterprises are mostly concentrated in Shandong, Henan, Xinjiang and other places. Weaving enterprises are distributed in Shandong, Zhejiang, Jiangsu and other places. Printing and dyeing enterprises are basically concentrated in Zhejiang, Jiangsu, Guangdong, Shandong and other places.” Cao Yuan explain.
“Midstream textile processing companies have limited bargaining power with both upstream and downstream companies. Procurement costs, business decisions, product quality, and sales orders are all factors that affect the profits of midstream companies.” said the above-mentioned market person.
Weaker cotton prices are good for textile enterprises
Midstream processing and manufacturing are squeezed by both ends of the industrial chain, and the sluggish operating situation in the midstream and downstream has limited the transmission of high cotton prices. The weak cotton price pattern may continue, creating some room for the improvement of operating profits of textile companies.
Fang Huiling said that at present, the downstream orders of textile enterprises are still mainly short orders, and we need to pay close attention to the domestic and foreign autumn and winter orders from July to September. “There is a large backlog of products in the cotton spinning supply chain, and new orders are insufficient. Currently, there are still about two months until the new cotton harvest is launched. If there is no substantial improvement in downstream consumption, the overall weak pattern of the cotton spinning industry may continue.”
“There are still more than 2 million tons of domestic cotton unsold this year, and cotton production in the new year is expected to increase year-on-year. Under the combined influence of factors such as insufficient cotton consumption power and high cotton prices, the cotton market is expected to continue to be weak.” Cao Yuan think.
“Competition in the textile industry is fierce. Due to the separation of production and consumption in time, space and subject matter, it is difficult to achieve a perfect match between production capacity investment and final demand. Inventories in each link of the industrial chain may further accumulate, thus inhibiting the rebound of cotton prices.” Wu Xinyang said .
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