Spring sowing of cotton is approaching. Compared with last year, the domestic cotton planting area has increased significantly this year. According to a survey by the China Cotton Association, China’s intended cotton planting area in 2022 is 43.98 million acres, a year-on-year increase of 789,000 acres, or 1.8%. The increase in the intended cotton planting area is partly due to the increase in cotton market prices in 2021/22.
Since February this year, cotton prices at home and abroad have been on the rise, with futures and spot prices hitting new highs in recent years. At present, the price of cotton has far exceeded the affordability of textile enterprises, and the cost of raw materials is not transmitted smoothly to the downstream of the industrial chain.
Cotton prices may remain high in the short term
As of March 31, China’s cotton price index 3128B reached 22,899 yuan/ton, an increase of 3.12% during the year. In terms of spot prices, the latest data from SunSirs shows that the domestic market price of lint cotton on March 30 was 22,939.17 yuan/ton, an increase of 3.30% compared with December 31, 2021. In terms of futures, as of the close of March 31, the main continuous contract price of Zheng Cotton reached 21,755 yuan/ton, and the futures price during the year was as high as 22,210 yuan/ton, an increase of 7.87% from the lowest price of 20,590 yuan/ton during the year.
Source: China Cotton Network
Talking about the impact of high cotton prices, Liu Mei, a cotton analyst at Shanghai Ganglian Agricultural Products Division, said that on the one hand, high cotton prices will cause the cotton purchased at high prices by gins to be processed and difficult to sell; on the other hand, it will cause downstream cotton cloth, Exports in areas such as textiles and clothing production pose risks. At present, the price of cotton has far exceeded the affordability of textile companies, and the cost of raw materials is not transmitted smoothly to the downstream of the industrial chain, resulting in slow sales progress of cotton companies.
Regarding the future trend of cotton prices, Qian Jingfei, an associate researcher at the Institute of Agricultural Economics and Development of the Chinese Academy of Agricultural Sciences, predicted: “Judging from the trend since March, the domestic textile market has been weak, and the probability of ‘not busy in the peak season’ is relatively high. . Geopolitical risks, domestic and foreign epidemic situation, new cotton planting area in 2022, etc. are all important variables that affect the future trend of the market. It is expected that domestic cotton prices will remain high in the short term.”
At present, the average price of 328-grade cotton is around 22,500 yuan/ton, and the sales price of 32-count cotton yarn is around 28,900 yuan. Most cotton spinning mills are in a state of breakeven or a small loss. Cotton is basically purchased as you use it, and the cotton yarn inventory exceeds 23 For more than three days, only a small number of cotton spinning mills have remained profitable.
According to feedback from some small and medium-sized cotton textile enterprises in Hebei, Henan, Shandong and other places, there have been relatively few new orders recently, spinning profits have been greatly compressed, and some orders have even suffered losses of more than 1,000 yuan/ton. Cotton yarn and gray fabric inventories are also increasing. Recently, The willingness of textile companies to reduce production continues to increase.
Many cotton spinning mills said that if cotton prices continue to rise, they can only reduce operating rates or suspend operations. The person in charge of a company that specializes in pure cotton yarn said that due to the rise in cotton yarn after the year, order costs will increase, profit margins will be compressed, and new orders will not be accepted. Half of the machines in the factory have stopped production. Currently, the company is relying on raw materials. processing to maintain production, and adopt a wait-and-see attitude towards the market outlook for raw materials.
Textile companies are forced to reduce operating rates
At present, most areas for epidemic prevention and control implement at least “3+11” control measures. Once the risk control level of a certain place rises, it will be under strict closed management for at least 14 days. Under the severe epidemic prevention and control situation, companies have no choice but to overcome temporary difficulties by reducing their operating rates. It is expected that the operating rates of some textile companies in areas with greater pressure for epidemic prevention and control may continue to decline, and corporate holidays may be unavoidable.
The domestic epidemic has spread across a large area, prevention and control efforts have continued to escalate, logistics has come to a standstill in some areas, cotton yarn shipments are not smooth, and freight rates continue to rise, making the operations of textile companies even worse. It is understood that in accordance with the epidemic prevention and control requirements, many high-speed exits from cities and counties in southern Jiangsu to Shanghai, Suzhou, Wuxi, Nanjing and other places are currently closed, and the circulation of goods is suspended. The products of large and medium-sized cotton trading, textile, clothing and other enterprises in the region Transaction flow has been affected to varying degrees.
Affected by the epidemic control, the operating rate of a yarn company in Jiangsu has dropped to 60% to 70%. Some employees are living at home and in the factory to implement “3+11” epidemic prevention management. At the same time, the transportation of raw materials and products is slow, and the company is forced to reduce the operating rate.
A textile company in Yancheng, Jiangsu said that after the Spring Festival, the company’s raw cotton inventory was reduced to about half a month, and the backlog of finished products was about a month.
The person in charge of a textile company in Hubei Province said that the company is currently affected by a lack of orders and is under great operating pressure. It is understood that the company’s raw material inventory lasts about a month, and the price of 32s yarn is 29,000.�/ton ~ 30,000 yuan/ton, and the quoted price of combed 40s yarn is 33,300 yuan/ton ~ 33,500 yuan/ton. The person in charge of some small local textile companies said that if the company’s orders still cannot improve in the later period, the company plans to shut down in early April for a holiday.
In addition, wide fluctuations in the RMB exchange rate have made it more difficult to receive export orders. Multiple uncertainties such as the situation in Russia and Ukraine, the domestic epidemic, and the Federal Reserve’s interest rate hikes have made market transactions more cautious. This has given many spinning companies the idea of short-term production reduction or even suspension of production.
Downstream companies actively respond
Cotton prices continue to remain high, putting great pressure on downstream textile companies. Under the attack of multiple factors such as cotton prices continuing to fluctuate at high levels, finished product inventory pressure increasing, and supply and demand imbalances, the textile market’s “Gold, Three Silver, Four Reds in May” market may not be as expected.
The latest data from the China Cotton Situation Monthly Report show that in February this year, domestic textile companies had a low startup rate due to the Spring Festival holiday. Some companies chose the right time to replenish their stocks, and domestic cotton commercial stocks declined slightly. At the end of February, the total national cotton commercial inventory was approximately 5.4084 million tons, a month-on-month decrease of 2.63% and a year-on-year increase of 7.16%. The quantity of cotton shipped out of Xinjiang has also declined. In February, Xinjiang cotton professional warehouse shipped 147,300 tons out of Xinjiang, a month-on-month decrease of 79,500 tons and lower than the 208,300 tons in the same period last year.
Analysts said, “The current bidding for conventional varieties is serious, and the start-up load of textile enterprises and weaving mills in some areas has dropped. At the same time, spinning enterprises have suffered overall losses in spinning profits, and some textile enterprises have reduced the proportion of cotton and switched to the production of blended products, resulting in the ‘Golden Three The silver market has failed to show up. Textile companies will face risks such as loss of immediate profits from spinning and insufficient orders in the future. They can hedge related risks through load reduction, spinning changes, and raw material hedging.”
Orders for blended yarns continue to increase
Different from the pure cotton yarn market, the demand for some blended differentiated yarns is relatively good. According to the textile market monitoring of China Yarn Network, from the perspective of purchase demand, the demand for blended yarns continues to grow, while the demand for colored yarns has dropped significantly.
According to the market information of China Yarn Network, during the week from March 24th to 31st, the demand for pure polyester, polyester cotton, TR, and RT accounted for 27%, and the varieties were T/C knitting/woven, R/T knitting , CVC knitting is the main product, an increase of 3 percentage points from last week. It is expected that the order volume of blended varieties will continue to increase in the long term.
During the same period, the demand for colored yarn accounted for 3%, a decrease of 7 percentage points from last week. The market mostly inquired about conventional varieties, among which conventional hemp ash varieties were not shipped smoothly.
The demand for pure cotton carded and OE yarns and imported yarns accounted for 12%, which was the same as last week. Factory inventories continued to increase, and transactions were mainly negotiated. Due to the surge in prices of US cotton and Indian cotton, the price of imported yarn continues to rise.
Purchases of viscose, pure bamboo fiber and viscose cotton accounted for 14%, an increase of 4 percentage points from last week.
China Yarn Net yarn purchase ratio from March 24th to 31st
Regarding the issue of cotton spinning enterprises gradually switching to the direction of polyester-cotton yarn, polyester-viscose yarn and other blended yarns, a survey of some small and medium-sized textile enterprises in Henan, Shandong, Jiangsu and other places shows that the phenomenon of switching to blended yarns and purified fiber yarns does exist. But it is not common. The following reasons restrict the conversion of spinning enterprises: First, T/C and CVC mid-to-high-end yarns have relatively high requirements on spinning technology, equipment and worker operation levels, which cannot be achieved by some small spinning mills.
Second, the demand for new fiber yarns and differentiated fiber yarns is relatively small and stable. The market supply and demand are already mature (profits are relatively high). It is not easy to compete for customer resources from other peers. In addition, new yarns generally have the characteristics of small single batches, large batches, and rapid changes. Generally, yarn mills that produce conventional varieties all year round have difficulty adapting.
The turning point of cotton price decline will appear
In order to cope with the rising prices of raw materials, downstream manufacturers have to increase product prices to ensure profit margins. Take Vosges, a listed company engaged in the production and sales of home textiles, as an example. In order to cope with the impact of the sharp increase in the price of cotton, the main raw material, the company’s response strategy is to “increase the selling prices of the company’s products in overseas markets by an average in the fourth quarter of 2021″ 3% to 5%, and the domestic market price increase is 5% to 8%. In 2022, the company’s products still have price increase plans.”
“Judging from cotton prices over the years, the current cotton price is obviously on the high side.” Liu Mei, a cotton analyst at the Shanghai Ganglian Agricultural Products Division, pointed out, “Xinjiang cotton sales have problems such as cost inversion, but it is expected that the global cotton gap will be due to the subsequent Narrowing due to high prices. In addition, the increase in cotton planting area in the new year will also supplement cotton supply. It is expected that after global cotton demand peaks, the inflection point of cotton price decline will appear. ”
“In the short term, domestic and foreign sales orders have not shown improvement, and downstream companies are facing the dilemma of profit squeeze under high costs. They need to pay attention to the issue of capital recycling and focus on stability under pressure. In the medium and long term, textile companies need to take the initiative to strengthen independent innovation. capabilities, work hard on product quality, and build core competitiveness.” said Qian Jingfei, associate researcher at the Institute of Agricultural Economics and Development, Chinese Academy of Agricultural Sciences.
host. In the medium to long term, textile companies need to take the initiative to enhance their independent innovation capabilities, work hard on product quality, and build core competitiveness. “Qian Jingfei, associate researcher at the Institute of Agricultural Economics and Development, Chinese Academy of Agricultural Sciences, said.
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