According to cotton merchants, textile mills are currently receiving more and more contract breaches from retailers, and last week’s U.S. cotton export weekly report is a clear example. In the past week, yarn mills have paid more attention to yarn sales rather than raw material procurement. Recently, raw material procurement has remained flat.
In the past week, the global yarn market has stabilized slightly, but yarn mills still face problems such as a serious shortage of downstream orders, large inventories, and high energy prices and capital costs. Despite a slump in cotton prices, demand remains sluggish as mill companies accumulate large inventories that need to be digested. Obviously, at the current stage, companies with small inventories or companies with low forward inventory replenishment have some advantages. Competitive pressure will mean that many operators will be forced to slash profit margins and run rates may also need to be adjusted downwards to avoid further build-up in yarn stocks.
However, many cotton mills currently hope that cotton prices will strengthen slightly to improve the current predicament. The transparency of the cotton futures market also makes it a quasi-price barometer for downstream textile buyers – so a stable or gradually rising price over time is in the best interest of all parties.
Currently, the negative impact of inflation is forcing changes in consumer spending patterns. Last week, Walmart executives lowered their profit forecasts, saying rising fuel and commodity costs were forcing consumers to spend more on necessities, less on products such as clothing, and more on services. Although jobs are plentiful and unemployment is low, the cost of living is rising faster than income for most consumers.
With the recession in Western countries and the setback in apparel sales, cotton use will fall more than currently expected, which may depress prices when new flowers from the northern hemisphere are available in large quantities from September to November. At the same time, although cotton supply is lower than expected, the support for the market from consumption is also weakening.
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