Affected by the COVID-19 epidemic, the U.S. cotton ban on Xinjiang and the turbulent macroeconomic and political environment, the production and sales situation of the textile market continues to weaken. Downstream orders in the traditional peak season are not strong, and export sales are blocked and domestic demand is insufficient.
Textile enterprises product inventory backlog
From May to July, Zheng cotton prices continued to fall rapidly, exacerbating the plight of the cotton spinning industry. As the price of cotton fell to about 14,000 yuan/ton, in order to understand the changes in the operations, inventory, mentality, etc. of downstream textile enterprises, an on-site survey was conducted on Shandong Cotton Spinning from August 2 to 5.
Summary of the research:
(1) Product inventory is at a high level and it is difficult to digest;
(2) Orders have declined sharply year-on-year. Current orders are still small. Large orders and long-term orders are rare, while small orders and bulk orders are mostly small. The order cycle is short.
(3) The companies surveyed can still start up, but in the case of limited production and shutdown, it is generally believed that the startup rate of neighboring peers is low.
(4) So far this year, textile companies have suffered overall losses, and some companies said that production profits are the lowest in history. Although the current spot production of cotton yarn is profitable, it is actually difficult to realize it.
(5) Market situation: At present, low-count yarns are selling well in the market, but the current market quotations are chaotic. Some manufacturers are competing for prices, and the price difference between the same variety can reach 500-2,000 yuan/ton.
(6) Enterprise raw material cotton stocks are generally low, and they are mainly used as needed.
(7) It is generally believed that the Xinjiang cotton ban has a greater impact, in order of strictness of implementation: United States>Europe>Japan>South Korea.
(8) Generally speaking, I am not optimistic about the market situation in the third quarter. I think it will be good if it can stabilize in September and October, and it will be difficult to rise. Many companies believe that there is not much room for continued decline, and the overall trend is weak and volatile, but tends to be stable. Companies generally hope that there will be improvement in the fourth quarter, and we will wait and see whether the price of new flowers will bottom out when they are launched.
Cotton yarn prices vary
Currently, it is the traditional off-season for the cotton textile market, and the continuity of orders from downstream textile companies is poor. Most spinning mills said that orders are seriously insufficient, and the atmosphere is full of pessimism. Textile companies are cautious in purchasing and replenishing stocks, and are worried that the price of raw cotton will continue to fall, and the market will continue to offer profit-making shipments. , mostly wait-and-see adjustments, waiting for the market outlook to improve before making adjustments.
Figure 1 Start-up status of textile enterprises in mainstream regions from 2020 to 2022
According to data monitoring by Mysteel Agricultural Products (000061), as of the end of July, the startup load of textile enterprises in mainstream areas was 46.2%, a month-on-month decrease of 16.6%, and a year-on-year decrease of 46.8%. In the off-season of textiles, coupled with the disturbance of the COVID-19 epidemic, shutdowns and production suspensions are common among textile enterprises in some areas. Start-up loads continue to decline. Backend orders are seriously insufficient and shipments are sluggish. It is expected that the start-up loads of textile enterprises will remain low in the short term.
Figure 2 Yarn inventory situation of textile enterprises in mainstream regions from 2020 to 2022
According to Mysteel agricultural product data monitoring, as of the end of July, the yarn inventory of textile companies in major regions was 35.5 days, a month-on-month increase of 6.9%, and a year-on-year increase of 190.9%. The inventory discount days of textile enterprises in mainstream areas have increased, and the overall market demand is still poor. The inventory of finished products in spinning mills has accumulated more, and shipments are not smooth. Affected by the sharp drop in cotton prices, market confidence is relatively insufficient, and speculative demand is relatively deserted and rigid. Demand release is greatly affected by emotions. The overall market transactions lack continuity and stability. Terminal procurement is also on the side of wait-and-see and on-demand. The yarn inventory of textile enterprises is still at a high level.
Figure 3 Current profit situation of textile enterprise C32s ring spinning from 2020 to 2022
According to Mysteel agricultural product data monitoring, as of the end of July, the spot profit of C32s ring spinning nationwide was 3,026.6 yuan/ton, a month-on-month increase of 21.8%, and a year-on-year increase of 42.1%. The production reduction in spinning mills has obvious effects, and the contradiction between supply and demand has been alleviated to some extent. However, in the medium and long term, the recovery of the demand side is still unclear. In addition, the negative impact of the Fed’s interest rate hike expectations on commodities still exists. Most market participants are still optimistic about the market outlook. The main focus is to wait and see cautiously. The willingness to purchase downstream orders is low. The price is negotiated based on the actual amount of documents. Weaving mills purchase only part of the rigid needs. They are worried about falling prices and cautiously stock up. Although the spot profits of spinning enterprises have increased significantly compared with the previous month, the current spinning rate is still low. The cost of cotton used by enterprises is still high. During the early decline in cotton prices, inventories were replenished. In addition, the shipment of cotton yarn spun in the early stage was not smooth, and manufacturers’ inventory resources were at a loss.
Figure 4 Price trend of pure cotton 32s ring spinning from 2020 to 2022
According to Mysteel agricultural product data monitoring, as of the end of July, the national average price of 32s ring-spun cotton was 25,686 yuan/ton, a month-on-month decrease of 8.83% and a year-on-year decrease of 5.53%. As cotton yarn prices continue to decline, market pessimism intensifies, and downstream users are cautious in purchasing. Manufacturers generally report that there are few inquiries and transactions are very light. The demand from textile enterprises is weak and cost support is insufficient. In the short term, spot prices still have some room for downside.
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