Cotton Prices Fall, Textile Enterprises Profit Improved

Since May, the price of cotton has been falling continuously, which has dropped by more than 30%, obviously exceeding the decline of cotton yarn futures in the same period, which makes textile enterprises suffering from high price raw materials breathe a sigh of relief.

The reporter learned that since this year, textile enterprises have been subject to "two restrictions". Recently, with the fall of cotton price, the pressure of enterprise operation has been reduced. Industry insiders expect that in the subsequent loose supply and demand pattern, textile enterprises are expected to usher in improved business performance.

　　 Profits of textile enterprises have improved

"Production margins have improved." A cotton textile enterprise told reporters, but due to the early accumulation of more inventory, the current sales of inventory, and no plan to increase the production load.

According to Wenhua financial data, as of July 27, the main contract of cotton futures was 14845 yuan / ton, down 32.6% from the May 5 high of 22035 yuan / ton; Cotton yarn futures main contract fell 26.5% from the peak so far this year.

Reporters learned from a number of insiders, with the fall in cotton prices, textile enterprises production profits improved. However, new orders are limited, textile enterprises are generally facing inventory depreciation, sales difficulties and other issues.

"In the early stage, when cotton was about 22000 yuan / ton, textile enterprises suffered losses in large areas." A market person said, "even if there is an improvement, textile enterprises are still facing losses in the actual operation process."

"The industry is in the off-season, orders are scarce, inventory levels and operating rates are not ideal." Mayer Ya cotton futures analyst Cao Yuan told China Securities Journal reporters.

"In recent months, enterprises are still low in cotton inventory, but the production cost is still low." Fang Huiling, a senior agricultural product analyst at the Dongzheng Derivatives Research Institute, told China Securities Journal.

　　 The bargaining power of upstream and downstream is limited

Cotton accounts for the largest proportion in the cost composition of cotton textiles. Taking cotton yarn as an example, cotton accounts for about 70% of its production cost.

"For textile enterprises, the cost of cotton is basically determined by the purchase price of seed cotton in October every year." Wu Xinyang, a cotton textile researcher at China Securities construction investment Futures Co., Ltd., told reporters, "the high costs currently faced by textile enterprises are mainly caused by the irrational rush purchase of seed cotton in October last year, although the consumption in the downstream was declining at that time."

Taking c32s pure cotton yarn as an example, Cao Yuan calculated an account for the reporter: "1 ton of yarn needs 1.1 tons of cotton. According to the current spot price, the raw material cost per ton of yarn is 17420 yuan, and the price of cotton yarn is 25420 yuan / ton." Cao Yuan said, "another important cost is labor-intensive. Textile is a labor-intensive industry. At present, many enterprises reflect that it is difficult to recruit workers, which leads to the rising labor costs."

From the perspective of cotton textile industry chain, its upstream is mainly concentrated in Xinjiang, Xinjiang cotton accounts for almost 90% of the national cotton output; Midstream enterprises mainly include cotton spinning, weaving, printing and dyeing, and most of them exist in the form of industrial clusters; Downstream mainly includes clothing manufacturing and terminal retail. In terms of the layout of mid stream enterprises, "cotton textile enterprises are mostly concentrated in Shandong, Henan, Xinjiang, etc.; weaving enterprises are distributed in Shandong, Zhejiang, Jiangsu and other places; printing and dyeing enterprises are basically concentrated in Zhejiang, Jiangsu, Guangdong, Shandong and other places." Cao Yuan said.

"The mid stream textile processing enterprises have limited bargaining power on upstream and downstream, and the purchasing cost, business decision-making, product quality and sales orders are all factors affecting the profits of midstream textile processing enterprises." Said the market person.

　 Weak cotton price is good for textile enterprises

The midstream processing and manufacturing industry is squeezed by both ends of the industrial chain, and the low business situation in the middle and lower reaches limits the transmission of high cotton prices. The weak pattern of cotton prices may continue, bringing certain space for textile enterprises to improve their operating profits.

Fang Huiling said that at present, the downstream orders of textile enterprises are still mainly short and small orders, and it is necessary to pay close attention to the autumn and winter orders at home and abroad from July to September. "There is a large backlog of cotton textile supply chain products, and there are not enough new orders. At present, it is about two months before the new cotton harvest is put on the market. If there is no substantial improvement in the downstream consumption, the overall weak pattern of the cotton textile industry may continue."

"There are more than 2 million tons of domestic cotton not sold in this year, and the cotton output in the new year is expected to increase year on year. Under the comprehensive influence of factors such as insufficient cotton consumption power and high cotton price, it is expected that the cotton market will continue its weak pattern." Cao Yuan believed that.

"The textile industry is highly competitive. Due to the separation of production and consumption in time, space and main body, it is difficult to achieve a perfect match between production capacity investment and final demand, and inventory in various links of the industrial chain may further accumulate, thus inhibiting the rebound of cotton prices." Wu said.

(source: China Securities Journal)