On January 9, 2023, the onshore and offshore RMB continued to rebound strongly against the US dollar, reaching a new high since mid-to-late August 2022. So far, both the onshore RMB and offshore RMB have exceeded the 6.8 mark.
Institutions have stated that the continued appreciation of the RMB is mainly affected by factors such as the rigid exchange settlement order before the Spring Festival, the net inflow of northbound cross-border funds, and expectations for the recovery of economic activities. Guotai Junan Securities believes that the space for further appreciation of the RMB in the short term is limited, and it is expected that short-term support will be around 6.6-6.7 in the future. The RMB exchange rate has appreciated sharply against the US dollar, and the cost of imported cotton and cotton yarn has dropped significantly, and the price inversion of domestic and foreign cotton yarn has narrowed.
According to feedback from several light textile import and export companies in Zhejiang, Guangdong and other places, in the past week or so, some domestic weaving companies and middlemen have increased their attention and inquiries about Indian cotton yarn, Vietnamese cotton yarn, and Pakistani cotton yarn shipments/bonded goods. , especially the Indian OE yarn, C32S and below ring spinning sales market shows the momentum of “turning around and all the profits are gone”. On the one hand, since early January, cotton yarn quotations from spinners in northern India have once again fallen by US$0.0.2-0.06/kg. The price-performance competitiveness of Indian cotton yarn has recovered compared to Vietnamese yarn, Pakistani and Indonesian yarn; on the other hand, some small and medium-sized Indian yarn mills have become more flexible in accepting orders, with buyers placing orders 2-3 months in advance (so that the mills can The purchase of raw materials such as cotton, polyester staple fiber, viscose staple fiber) is adjusted to about one month or less in advance (judging from the news reported by private cotton companies in Gujarat, Maharashtra, etc., most yarn mills The operating rate is about 60%-70%, and the yarn mill can receive and arrange orders at any time).
On the premise that the RMB exchange rate is still on the appreciation channel, should we sign a large number of contracts to import cotton yarn? Several weaving companies in Jiangsu, Zhejiang and other places believe that it is too early or not the best “window” to enter the market. The reasons are as follows:
First, judging from the feedback from downstream textile and apparel companies, foreign trade companies and other orders received, it is still in a state of “strong expectations, weak reality”. Although the industry is generally optimistic that the comprehensive easing of epidemic restrictions, the implementation of policy and monetary support, and the rebound of global textile and apparel consumption will stimulate the export of Chinese enterprises, traceability orders in the first quarter of 2023 will still be mostly short orders, small orders, and urgent orders.
Second, domestic cotton prices in India, Pakistan and other countries are still on the high side, which supports the high FOB/CNF quotations of cotton yarns, and the inverted price difference between domestic and foreign cotton yarns is still prominent. It is understood that since early January, the price difference between C32 imported cotton yarn and domestic C32 cotton yarn has been about 800-1,000 yuan/ton. Although it continues to narrow compared with the fourth quarter of 2022, for cloth factories and clothing companies, the use of imported cotton yarn The profit from completing the order is still low or even a loss.
Third, in the context of the Federal Reserve continuing to raise interest rates in 2023, there is a high probability that the RMB will start to fluctuate in both directions. The narrowing of the current account surplus, the current short-term interest rate differential between China and the United States, and the US dollar index are still important factors affecting the global financial market. In the short term, uncertainty about the Fed’s interest rate hike process will restrict the appreciation of the RMB.