Foreign Trade Order Diversion, Cotton Price Rise Enterprises Need To Be Cautious

 

At present, the proportion of cotton in the cost of enterprises continues to increase. The proportion of cotton in the cost was between 50% and 60% in the past, but now it accounts for more than 70% of the cost. We also have no way to hedge against the rise in cotton prices, because the price of cotton may be rising now, but it may fall again after preparing materials in advance, so there is no way to predict.

Enterprises are now very cautious in receiving orders, and will communicate with customers about rising costs. For example, if the price of cotton rises within the scope that the enterprise can bear, in order to maintain customer resources, it will help customers to bear the cost of this price increase. However, if the price rises too much, the enterprise can not afford it. They may discuss with the customers how to deal with the price increase, for example, each party should bear half of the price increase cost.

In all links of the cotton textile industry chain, the contradiction between supply and demand will be highlighted in 2021, which will lead to the outbreak of bull market and the bottom-up transmission of profits. From the second half of 2020 to September 2021, the profit of the whole domestic cotton textile industry chain is relatively good.

However, under the impact of high cotton prices, textile profits are rapidly falling. Throughout the world, the year-on-year growth rate of clothing CPI is often lower than that of full commodity service CPI, and the growth rate is less than 2%, which determines that the profit level of the whole industry chain is relatively limited, and the driving force of cost rise on the transmission of final consumers is weak, so the profit margin of cotton textile industry chain will return to mean value.

For China's textile and garment enterprises, there is another problem: foreign trade order diversion. With the acceleration of resumption of work and production in Southeast Asia, the phenomenon of external single diversion has become prominent. According to the survey of China cotton net, about 70% of cotton yarn and cotton cloth enterprises' orders decreased month on month and year-on-year.

In the context of rising cotton prices, enterprises are also looking for countermeasures. Enterprises began to reduce the amount of cotton, will choose to produce polyester, viscose, rayon and other products. Although the price of chemical fiber raw materials is also rising, but the overall rise is not much.

This may further affect cotton demand. From 2022, domestic and international cotton prices may be adjusted to some extent, but the adjustment range needs to pay attention to the follow-up new cotton planting situation and the weather conditions in the production area.

In terms of demand, under the influence of the global epidemic situation, the international situation, and the macroeconomic downturn, it is expected that the demand for textiles and clothing will not perform well. The poor demand will continue to suppress cotton prices. It is expected that cotton prices will be gradually adjusted, but new uncertainties will be formed in the growth of cotton planting in the new year.

The rise of last year's harvest season has given global cotton farmers sufficient willingness to plant cotton. As the northern hemisphere gradually enters the spring sowing period, and the southern hemisphere Brazil is planting rapidly, the expansion is expected to be implemented. However, from planting to final harvest, weather and fertilizer play a key "role". As an important cotton exporter, the United States is facing the situation of worsening drought conditions, and the abandonment rate and yield per unit area may offset the growth rate of area.

In addition, the current order is not as expected, the domestic textile industry "gold, silver and four" failed. However, once orders appear marginal warming, low raw material inventory may lead to a passive replenishment market in the textile industry.