Limited by weather and disasters (Hurricane in the United States, Indian bollworm, weather in Xinjiang, etc.) and epidemic restrictions, global cotton supply is tight, driving cotton prices to continue to rise. On October 11, the China Cotton Price Index (CC Index) was 21,699 yuan/ton, an increase of 12 yuan/ton from the previous trading day, and an increase of 3,423 yuan/ton from a month ago.
The reporter learned from multiple interviews that the middle and lower reaches have different reactions to the surge in cotton prices. The profits from cotton yarn sales have increased, and both production and sales have been booming, which has promoted the profit margins of cotton spinning companies; while gray cloth The price transmission of downstream products such as clothing and clothing has not yet been clearly reflected. At present, cotton prices are mainly driven by supply contradictions, and downstream demand has weak support for cotton prices. Many clothing companies have placed orders until next year, and there may be a new round of price increases after digesting their own inventories.
1 Cotton spinning leader fully benefited
On October 11, 100 The relevant person in charge of Longfang Dongfang (601339.SH) told reporters from the Associated Press that 60%-70% of the cost of the company’s products comes from raw material cotton, and cotton stocks are generally stored for 3-6 months. The recent increase in cotton prices has driven the company’s products Prices have risen while procurement costs have remained low, boosting the company’s product profit margins.
As the leader in color spinning, Blum Eastern’s current yarn production capacity is around 1.8 million spindles. The company’s inventory in 2021H1 is 3.53 billion, of which the raw material value is 2.32 billion. Benefiting from sufficient stocking during the early period of low cotton prices, the company’s H1 gross profit margin rose to 20.9%, a year-on-year increase of 128.2%.
“Our downstream customers are in the fast fashion category, and they basically buy spot goods. In addition, because of our strong bargaining power, product price adjustments are relatively smooth, and our production capacity is currently operating at overload. ,” the above-mentioned person in charge mentioned that 60% of the company’s production capacity is located in Vietnam. Due to Vietnam’s epidemic control, the operating rate was only 40% in mid-August. At present, workers are returning to the factory in order, and production capacity needs to be gradually restored.
On July 5, Blum Oriental announced a private placement plan, planning to invest US$250 million in Blum (Vietnam) to expand its 390,000 spindle yarn project, the person in charge said Mentioned that the project will be released next year, and the company is optimistic about the demand for yarn products in the Southeast Asian market in the long term.
2 Price increases have not yet been transmitted to downstream garment companies
One Apparel industry analysts told reporters from the Financial Associated Press that rising cotton prices mainly drive the profit margins of upstream cotton spinning companies, and have little impact on the profit margins of downstream garment companies, because cotton raw materials account for a small proportion of corporate costs, and product markups are high. “This is a dynamic process. 10 yuan of cotton corresponds to a terminal retail price of about 400 yuan, and the company’s purchase price is about 130 yuan. Even if the cotton doubles, the company’s cost will not increase too much. The main addition is labor. , manufacturing expenses, companies can cope with it by adjusting the markup ratio and sales expense rate.”
The relevant person in charge of Peacebird (603877.SH) told the reporter of the Financial Associated Press that cotton raw materials are in The company’s cost ratio is not high, and the current increase in raw materials such as cotton and chemical fiber fabrics has not yet been reflected in the company’s product prices.
The reporter noticed that the downstream of cotton is mainly blended yarn, cotton yarn, and then to fabrics and finished products. Currently, children’s clothing, casual sportswear, underwear and socks, and cotton-based products are currently on the market. Fashion uses more cotton.
Jiansheng Group (603558.SH), whose main business is the production of cotton socks, is an example. Based on the increase in raw material prices, the company has raised product prices in the first half of the year and adjusted customer structure and reduce the way of cooperation with customers with high price sensitivity. The relevant person in charge of the company told reporters from the Financial Associated Press on October 11 that the company will soon conduct a new round of price adjustment evaluation with customers based on the order situation.
“Cotton raw materials account for 30%-40% of the company’s overall costs. We usually have six months of yarn in stock. We haven’t started to buy the rising raw materials yet, so the inventory can be used. By the end of November. Now we are mainly rushing for shipments during the Christmas period. After November, demand will decline, and the possibility of raw materials continuing to rise is small.” said the person in charge.
Branded clothing orders are generally placed six months to a year in advance, and rising prices of raw materials are not immediately transmitted to consumer terminals. A Balabala brand agent told a reporter from the Financial Associated Press that the company had already placed orders for next summer in September this year. The retail prices of the ordered products have been determined and will basically not be affected. “If cotton prices continue to increase, , market pricing may change next autumn. At present, raw materials directly affect the cost of fabric manufacturers. If manufacturers place orders without stocking fabrics in advance, they will have to bear the increase in purchase prices and compress their own profits.”
3 Tight short-term supply is expected to support cotton prices
Wuchang Zhongda Futures Senior Analyst Xie Wen told reporters from the Financial Associated Press that the current supply-side contradictions of cotton are more prominent and are the most important driving force for prices: Indian cotton production has decreased due to insect pests, Xinjiang cotton production has decreased due to high temperature weather, and recent rain and snow have led to cotton picking. Progress is blocked. After the weather improves, cotton picking prices, loading and unloading fees and transportation fees are all increasing. Even if there is a correction in purchase prices in the past two days, cotton prices are still high.
Xie Wen mentioned that the textile start-up rate in Southeast Asia may further decrease with the control of the epidemic in Vietnam. Coupled with the shortage of coal in India, the power rationing effect in India has just begun, and textile orders will continue to return in the future. Domestically, the current domestic textile operating rate has been reduced due to the impact of dual control. In the context of the return of orders, the related industry chain hasProduct prices may continue to rise.
Weak downstream demand growth and supply-side competition have become contradictions in the current market. The China Cotton Association pointed out that recently, the inventory of cotton finished products has increased significantly, price increases have been weak, and the wait-and-see attitude of enterprises has intensified. In addition, there are still many uncertainties such as changes in the epidemic and trade frictions, making it difficult for cotton prices to continue to pass on. The China Cotton Association estimates that consumption in 2021 will be 8.43 million tons, basically the same as the previous year.
It is worth noting that in order to meet the cotton needs of cotton spinning enterprises, on October 7, China Cotton Reserve Management Co., Ltd. issued the “About the Release of the First Batch of Central Reserve Cotton in 2021″ Announcement”. According to the announcement, China Cotton Reserve plans to supply 585,000 tons of cotton from October to November to stabilize the market from the supply side. The increase in short-term supply is expected to have a cooling effect on the rush to harvest new cotton. </p
