Khmer prices eat up profits. When will the demand inflection point appear?

Cotton prices continue to rise. Compared with trading companies that actively quote prices, cotton spinning companies are forced to face the “soft cotton” market. Many …

Cotton prices continue to rise. Compared with trading companies that actively quote prices, cotton spinning companies are forced to face the “soft cotton” market. Many cotton spinning companies said that the rise in cotton prices has driven up the prices of related products, but because downstream demand has “not improved much”, it cannot provide long-term support for upstream prices.

It is understood that for listed cotton spinning companies that stock up in advance, short-term fluctuations in raw material prices will have little impact. However, current downstream orders are mainly short-term orders, and small and medium-sized enterprises with low inventory levels have begun to have their profits eaten up by high cotton prices.

Cotton costs rise, making it difficult for downstream companies to cope

As the cost of raw materials increases, listed cotton spinning companies will increase prices, hedging and other methods to stabilize profits.

The relevant person in charge of Huafu Fashion said, “The recent increase in cotton prices is good for us because we have stocks when the relative price is low, usually 3-6 months of inventory, so our gross profit will be higher after the market price increases. .”

Blum Oriental also stated that cotton, as the company’s main raw material, accounts for approximately 65%-70% of the company’s production costs. The company will carry out cotton futures business to avoid the impact of large fluctuations in cotton prices at home and abroad on performance.

For some companies with small inventories and weak bargaining power, rising cotton prices have become tangible pressure. A relevant person in charge of a listed company said, “Now that there is a shortage of orders from the downstream, we are unlikely to adjust prices. Unlike when cotton prices rose in the third quarter of 2021, domestic and foreign demand were strong. We adjusted prices quickly, and downstream acceptance was also low.” Very high.”

Yang Ping, a cotton analyst at Shanghai Ganglian Agricultural Products Division, also mentioned the pressure on textile companies: overall order performance has shown a weakening trend since May. Affected by rising raw material prices, cotton yarn prices have been tentatively raised recently, but feedback from downstream companies is difficult to accept and price transmission is not smooth. The person in charge of some cotton mills said that the business model of factories is gradually changing, and raw materials are tended to be purchased as needed. If cotton prices remain high and order follow-up is insufficient, processing profits are difficult to guarantee, and the operating rate may be lowered in the future to reduce financial risks.

According to statistics from Shanghai Steel Federation, the spot processing profits of domestic textile companies showed that as of June 6, the spot profits of Xinjiang cotton 3128B across the country were compressed by 58.18% to 555 yuan/ton.

Image source: Shanghai Steel Federation

When prices are transmitted along the industrial chain, small and medium-sized enterprises are often injured. Chen Qi, the person in charge of Haining Tianyi Socks Co., Ltd., said, “Our upstream cotton spinning mill is a large factory and has already increased prices. However, we have also reduced prices this year in order to increase order volume, and profits have fallen sharply.” He further mentioned , “General sock cotton yarn (including lining, spandex, elastic and other chemical fibers) accounts for 40%-50% of the entire sock quotation system. If the cotton yarn increases by 500-1000 yuan/ton, it will eat up about 1 percentage point of the net price of socks. Profit (rate) space.”

The market is dominated by short-term orders, and the inflection point of demand has not yet reached

According to data released by the General Administration of Customs, in the first five months, my country’s textile exports were 390.48 billion yuan, a decrease of 2.4%. In the short term, domestic sales and export orders have not shown improvement, and the profit dilemma of downstream companies due to high costs may continue for some time.

The person in charge of the above-mentioned listed company mentioned, “The market characteristics so far this year are that short-term orders are mainly short-term orders, which are relatively urgent. The raw materials of small and medium-sized enterprises are purchased and used at any time, which will cause greater pressure, which will have an impact on order receiving and scheduling. In terms of exports, there are also short orders and many orders, because overseas brands are still in the cycle of destocking.”

The person in charge believes that if the destocking of overseas brands ends in the second half of the year and consumption gradually recovers, there is expected to be an inflection point in demand. “In the domestic market, after entering May, orders were placed for autumn and winter clothing in the second half of the year. Orders are relatively stable. This year should be a trend from low to high.”

The above-mentioned person in charge of Huafu Fashion also said that recent orders are all short-term orders. “Currently, consumption is not very prosperous. This round of price increases is more of a short-term upward shock. In the long term, it still depends on downstream demand.”

It is understood that most cotton spinning companies are currently not at full production, and cotton spinning exports are under greater pressure this year. Some companies mentioned that this year’s export performance was weaker than last year.

Regarding the subsequent cotton price trend, Yang Ping said that macro factors are changeable and tight supply expectations support cotton prices, while the textile market has entered the off-season and weakened demand may inhibit cotton prices from rising too quickly.

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Author: clsrich