Cotton Prices Fall, Brand Clothing Companies Benefit Greatly

Since March, domestic cotton prices have dropped sharply.

According to the analysis of the industry, the fall in cotton prices will mean a reduction in costs for downstream brand clothing enterprises. These enterprises will usher in double promotion of gross margin and performance. For textile manufacturing enterprises such as cotton spinning, the pressure of inventory digestion will be increased, and the profit space will also be squeezed.

Value regression

China Cotton Association data show that in May 26, 2011, China

In September 2010, at the beginning of the new cotton year, cotton prices rose sharply under the combined influence of the expected reduction in cotton production and the bullish mentality. In just two months, cotton prices started at 18000 yuan / ton, and broke through the 20 thousand and 30 thousand juncture in succession. From November 11, 2010 to November 11, 2010, cotton prices touched to 31302 yuan / ton, the highest increase was about 75%.

A rapid adjustment followed by a drop of 17% in 20 days.

Since the beginning of 2011, the cotton price has shown the word "V".

Since the beginning of the year, around 27000 yuan / ton has risen to 31241 yuan / ton in March 8th. After that, it turned all the way down and went out of the lowest point in May 26th, which has dropped 22% compared with the high point in the year.

As for the decline in cotton prices since March, Wang Qian, an analyst, is not surprised. "The drop is mainly a process of water squeezing, and cotton prices have returned to their actual value."

Wang Qianjin believes that despite the fact that the supply of cotton is tight this year, cotton prices deviate from the crazy rise of supply and demand fundamentals, which has seriously damaged the interests of all parties in the cotton industry.

With the introduction of regulatory policies and the shrinking of downstream demand, the over optimism of the market has completely disappeared. Cautious watching has gradually become the mainstream, and cotton prices have returned to normal after excessive speculation in the previous market.

It is estimated that domestic cotton production and demand gap will be around 4 million tons in 2010/2011.

However, after experiencing irrational inflation, the supply and demand of cotton has been overdrawn and exceeded the whole industry chain and national recognition.

And there are many factors that cause cotton value to return.

The industry said that under the tight economic environment, the pressure of enterprise funds increased and raw material procurement was more cautious. At the same time, the rapid growth of the global "replenishment" market ended, leading to the textile and garment export is not strong, but also inhibited the demand for cotton.

Customs data show that 1-4 months of this year, China's textile and apparel exports totaled $68 billion 500 million, an increase of 27.39% over the same period last year.

Among them, the export of textiles was US $28 billion 931 million, an increase of 34.05% over the previous year, and exports of clothing and accessories reached US $39 billion 569 million, up 22.93% over the same period last year.

However, Wang Qian believes that the increase in exports is mainly due to the increase in prices of products. In terms of quantity alone, the growth in the first four months of this year is only about 5%, which has obviously slowed down compared with last year.

Joy and sorrow are present.

Nevertheless, Wang Qian still believes that cotton has not said goodbye to the bull market. The increase of the comprehensive cost has decided that 25000 yuan / ton will become the new value center of cotton price, and cotton price will fluctuate around the value center in the next 5 years.

In March of this year, the Ministry of development and reform and other departments issued the "2011 cotton temporary storage and reserve plan". From September 1, 2011 to March 31, 2012, 13 provinces in Xinjiang, Shandong and other 13 provinces had no minimum purchase price of standard grade lint cotton per ton of 19800 yuan. The policy was regarded as the minimum protective price system of cotton flower in the industry, which was beneficial to protect farmers' enthusiasm for cotton planting, and indirectly determined the bottom line of cotton prices in the future.

The export competitiveness of China's textile industry will not be greatly damaged by the high cotton price. However, the fluctuating cotton price has seriously affected the normal production and operation of textile enterprises, and is not conducive to the stability of the textile industry. All parties are looking forward to the relative stability of the market.

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Zhang Rong, an analyst at Guotai Junan, said that the fall in cotton prices is a clear positive for the performance of the brand clothing this year. Most of the brand clothing enterprises take part in the form of order meeting to lock in some performance. The clothing price is generally raised by 10%-15%. With the fall of raw material prices, the production cost of autumn winter clothing is expected to decline significantly, which is conducive to raising the gross profit margin and profitability of the second half of the year.

For textile mills such as cotton spinning, cotton prices rose sharply, making some textile enterprises with low price cotton stocks ushered in a profit high of nearly ten years. But the process of cotton prices falling from a high level makes their profit prospects difficult. The inventory costs are too high and need to be digested quickly, and the prices of subsequent orders are lower along with the decline of raw material prices, thus reducing the profit margins of enterprises and increasing the revenue growth.

Brand clothing companies benefit from falling cotton prices, gross margins and performance improvement