Cotton-Yarn Price Spread Widens: Impact on Mainland Spinners' Profitability
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- Published: Friday, 24 May 2024 10:42
The intricate dynamics of the textile industry are once again under scrutiny as the price spread between cotton and cotton yarn widens, casting a shadow over the profitability of mainland spinners in China. This shift marks a new phase of fluctuation in the market, prompting concerns and strategic adjustments among industry players.
Since mid-April, the landscape of cotton pricing has undergone significant turbulence. ZCE cotton futures saw a sharp decline of nearly 1,700 yuan/mt, paralleled by a drop of approximately 1,000 yuan/mt in spot cotton prices. However, the decline in cotton yarn prices was relatively muted, hovering under 700 yuan/mt, thus widening the price spread between raw material and finished product.
The historical context of the price spread between cotton and cotton yarn offers insight into the magnitude of this recent fluctuation. In the latter half of 2023, the spot price spread fluctuated within the range of 5,500-6,500 yuan/mt, with futures prices even narrower, mostly confined within 5,000-6,000 yuan/mt. However, the recent sharp decline in ZCE cotton futures widened the futures price spread rapidly, jumping from around 4,900 yuan/mt on April 30 to 6,000 yuan/mt by May 17, indicating an increase of 1,100 yuan/mt. Meanwhile, the spot price spread has remained relatively stable around 6,000 yuan/mt.
The impact of these fluctuations on spinners' profitability has been profound. From late 2022 to Q1 2023, both mainland and Xinjiang spinners experienced decent cash flow. However, this trend gradually reversed, turning negative for mainland spinners in the latter half of the year. Although there have been slight improvements compared to late 2023, mainland spinners continue to face unsatisfactory cash flow conditions this year.
In stark contrast, spinners in Xinjiang have maintained a cash flow exceeding 1,000 yuan/mt, significantly outperforming their mainland counterparts. This glaring discrepancy in profitability has eroded the competitiveness of mainland spinners, leading to widespread production cuts, shutdowns, and shifts in product lines. These strategic adjustments, more extensive this year, underscore an ongoing transformation within the industry, signaling a continued departure from cotton in mainland China, a trend expected to persist into the next year.
The implications of these developments reverberate beyond the confines of the textile industry, touching upon broader economic and geopolitical considerations. As mainland spinners grapple with diminishing profitability and strive to adapt to changing market conditions, the resilience of China's manufacturing sector faces a critical test. Moreover, the shift away from cotton production in mainland China may have geopolitical ramifications, altering global supply chains and trade dynamics in the long term.
In conclusion, the widening price spread between cotton and cotton yarn poses significant challenges to the profitability and competitiveness of mainland spinners in China's textile industry. As market dynamics continue to evolve, strategic adaptation and innovation will be paramount for industry players to navigate these turbulent waters and sustain growth in an increasingly complex and competitive global landscape.