Industry Observation: Global Yarn Market Is Struggling

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At present, the global yarn market is generally struggling. Although the prices in some regions showed signs of stabilization last week, this may be related to the recent price rise of raw cotton substitutes, which makes textile mills no longer willing to reduce their quotations.

At present, the overall inventory of cotton mills is still higher than the normal level. A few weeks ago, the improvement of production and sales in China's cotton mills has begun to recede. The epidemic prevention and control continue to bring pressure on domestic textile demand, and the export is affected by the Xinjiang cotton ban. As China's textile downstream (knitting and weaving) is extremely important to other countries, the difficulties encountered in the Chinese market have also brought pressure on the textile industry in other regions.

In this regard, the order of wholesalers is particularly important. The fact has become very clear that due to over booking in 2021 and the first half of 2022, textile mills' inventory of various products has been transferred from the origin to the sales area, of which cotton is a part. Now, wholesalers are focusing on clearing inventory, which undoubtedly aggravates the market's worries about downstream demand in the context of global macroeconomic uncertainty. As a result, orders in all sectors of the textile industry have stagnated.

From the retail data of the United States, October this year saw a 1.3% month on month growth and 8.3% year-on-year growth, which was better than market expectations. This may only reflect the impact of inflation on prices, that is, the growth of retail sales exceeds the growth of retail sales, but it does not really reflect the decline of market demand. From the retail data in October, the retail sales of clothing and clothing peripheral products were basically flat, with a year-on-year growth of 3.1%. Therefore, if the retail demand in the United States, the world's largest consumer market, does not increase in quantity, even if the economy continues to decline, why can it remain stable?

Obviously, if retail consumption remains relatively active in the future (this idea is not realistic in the context of the Fed's continuous interest rate hike), once the current retail inventory consumption is exhausted, orders should return to a relatively normal level. The risk and opportunity is that if the inventory in the middle link of the supply chain is cleared excessively, the whole market will be very sensitive to the increase of demand, which needs to be paid more attention in the future.