China’s Textile Market Reports Falling Profits

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China’s Textile Market Reports Falling Profits

It is a difficult year for China textile market in 2022. Most spinners are struggling with losses, including cotton yarn, polyester yarn and rayon yarn. Cotton yarn continues to suffer deep losses, which are just reversed for about two months after cotton price slumped in the third quarter. Later, as the epidemic control in Xinjiang affected the arrival of new cotton and transportation, cotton spot price started to recover and cotton yarn suffered losses again. Polyester yarn profit started turning from positive to negative since May and the losses kept widening. Till now, polyester yarn has become the product that suffered the deepest losses among the three major spun yarns. Rayon yarn started to lose money since the second quarter, and there were bigger divergences among different varieties, with losses around 1,000 yuan/mt on average. It was not until the fourth quarter when the losses started to decrease with notable price decline of raw materials. The stronger raw materials and energy as well as labour and transportation have indeed led to rising production cost of spinners, which is part of the reasons that have caused losses. However, the main pressure is from lackluster demand that has resulted in lower price acceptance and less purchasing volume of fabric mills. Spinners have been inclined to reduce the inventory and even when orders are recovering during August-September, they prefer to sell more yarns instead of adjusting up prices greatly. Now there is three months before the Chinese Lunar New Year and most spinners keep yarn inventory of around 1 month. Based on current production status, the spinners can keep 1-2 months' inventory for the Chinese Lunar New Year holiday by selling out yarns of at least 2-3 months’ output. Spinners are undoubtedly keeping weaker position in price negotiation when traders and weaving mills who have held lower stocks for more than half a year and will keep acting cautiously. The Chinese Lunar New Year is coming earlier this year and most participants expect that the market will gradually be closed around New Year's Day. What we can still look forward to is the orders of spring and summer in the coming year. In view of the current environment, it is not easy to reduce the stocks. Therefore, even if the raw materials are fluctuating, yarn price still lacks upward momentum.