Looking At The Cotton Market From New Textile Production Capacity And Profit Margin

The relationship between the cotton market and the textile market is just like the relationship between fish and water. They are both organic and complementary.

The USDA Outlook Forum recently released initially predicted that the global cotton consumption in 2019/20 is expected to continue to grow by 1.5%, reaching 125 million 500 thousand packages. China's 2% consumption growth rate is slightly higher than the global average growth rate, and the cotton consumption is 41 million 300 thousand packs.

In March, the International Cotton Advisory Committee (ICAC) predicted that the growth rate of global cotton consumption is expected to slow down to 0.04% in 2018/19, of which China's consumption is expected to be 8 million 450 thousand tons, down 8% from the same period last year.

Taking foreign forecasts as a reference, let's take a look at the domestic textile market.

1. In 2017, the new production capacity of cotton textile ingot was higher than that in the past 15 years, 5 years and 3 years.

Data show that in 2017, cotton spinning ingot increased production capacity of 12 million 490 thousand spindles, and the average annual output of cotton spinning spindles increased by 10 million 540 thousand ingots and 1 million 950 thousand ingots in the past 15 years (2002-2017 years). The average annual production capacity of cotton spinning spindles in the past 5 years (2013-2017 years) is 10 million 270 thousand times higher than that of 2 million 210 thousand spindles. The average annual output of newly upgraded cotton spindles is higher than that of 3 years in 3 years (2015-2017 years). In 2017, the new production capacity of chemical fiber increased by less than that of the new year. According to the National Bureau of statistics in the Wind database

Two, chemical fiber price uplift inhibits the expansion of production capacity, and the growth rate of cotton spindle ingot is higher than that of chemical fiber.

According to the data of the National Bureau of statistics in the Wind database, based on the calculation in 2002, the new production capacity of cotton spinning spindles and the new production capacity of chemical fiber remain the same. However, since 2015, the rise of chemical fiber prices has played an inhibitory role in the increase of its production capacity. The new capacity of cotton spinning spindle is positive compared to the same period last year, and the production capacity of chemical fiber is negative compared with that of the previous year (see Table 2 and figure 1).

The National Bureau of statistics will announce the new capacity data in 2018 on October 2019. I believe that considering the impact of price on new capacity, the price trend of cotton prices in 2018 (Cncotton B) and sticky short (CNCotton VS) and polyester short (CNCotton PS) will continue the trend of the previous year. It is predicted that the trend of new production capacity of cotton spinning ingot and chemical fiber will continue to be the trend in the past year, which means that in 2018, the new capacity of cotton textile ingot will still be positive compared with that of last year, and the new capacity of chemical fiber will still be negative compared with that of last year (see chart 1).

Taking 2002 as the base period, the new capacity of cotton spinning ingot was significantly lower than that of chemical fiber.

Since 2011, as the price of cotton and chemical fiber has increased first and then increased, the annual new production capacity has slowed down over the same period. In the past 2015-2017 years, the change of new capacity in the year of chemical fiber is negative (see Figure 2).

Three, the sales profit margin of textile industry is higher than that of chemical fiber industry.

For enterprises, it is generally believed that the appropriate level of asset liability ratio is 40%-60%.

The asset liability ratio reflects the proportion of the funds provided by the creditors to all the funds and the degree of protection of the assets and interests of the creditors.

The lower the ratio (below 50%) indicates that the debt paying ability of enterprises is stronger.

According to the data of the National Bureau of statistics in the Wind database, first, in 2008-2018 years, the trend of asset liability ratio of textile industry and chemical fiber manufacturing industry's assets and liabilities ratio is basically the same, but there are differences in the fluctuation range of the two industries. The asset liability ratio of the textile industry fluctuates between 50%-60%, and the asset liability ratio of the chemical fiber manufacturing industry fluctuates between 55%-65% (see Figure 3). Secondly, the gap between the asset liability ratio of textile industry and the chemical fiber manufacturing industry asset liability ratio narrowed and then narrowed, which gradually widened from 2009, and gradually narrowed after 2016, but still larger than the lowest level in 2008 (see chart 4).

However, the gap between the two sales margins narrowed gradually after 2017, and most of the time, the sales profit margin of chemical fiber manufacturing industry was higher than that of textile industry.

In the 2008-2018 year, the sales profit rate of chemical fiber textile was greater than 0, only two times, the first time in 2010-2011 years, and second in 2017-2018 years (see chart 4).

Similarly, the price factor has a direct impact on the sales profit rate. In 2010-2011 years, cotton prices hit a record high, breaking through the 20 thousand and 30 thousand integer juncture. The sales profit margin of the chemical fiber manufacturing industry once exceeded the sales profit margin of the textile industry as the price of cotton rose, and the cotton price of 2017-2018 years was lower than that of viscose staple fiber, resulting in the sales profit margin of the textile industry lower than that of the chemical fiber manufacturing industry (see Figure 5).

Four, cotton area to strive for stability in 50 million acres more advantages than disadvantages, should not be too empty.

1, the expected increase in supply seems to have suppressed the market.

From the perspective of new capacity, asset liability ratio and sales profit margin, the textile and chemical fiber manufacturing industry is in good condition, with the new production capacity of cotton spinning spindle larger than that of chemical fiber, and the sales profit margin of textile industry is higher than that of chemical fiber manufacturing industry, but the price factor plays a particularly important role in it.

The agricultural supply side reform, the cotton target price subsidy policy, and the implementation of the reserve cotton rotation policy have played a decisive role in stabilizing the price of textile raw materials.

The key points of planting industry in 2019, issued by the Ministry of agriculture, put forward that cotton production should be concentrated in the dominant producing areas, and large-scale production should be encouraged, and the cotton area should be stabilized at 50 million mu.

According to the national cotton market monitoring system data, since 2014, under the support of national policies, the cotton planting area in Xinjiang has been relatively stable and showing a slight increase. However, the cotton planting area in the whole country has been below 50 million mu level for 3 consecutive years after 2015. Even after 2019, the continued increase of cotton planting area in Xinjiang is likely to increase the cotton planting area over 50 million mu level (see Figure 6). From the perspective of the impact of the increase in supply to the market, it seems that the cotton market will be suppressed.

2, the re industrialization of the United States and the continuous growth of the annual growth rate of smart textiles in the United States will make the textile industry face a new round of shuffling.

The author believes that in the past one or two years, the relative stability of China's consumption and the increase of new production capacity will provide strong support for the domestic market. But in the next 5 or 10 years, we should pay attention to the impact of intelligent manufacturing on the textile industry, especially the re industrialization of the United States. If the garment manufacturing industry realizes the return to shore, it will make the annual growth rate of intelligent textiles in the United States continue to improve, and the extensive promotion of machine sewing technology will make the orders outsourced in China, Vietnam and other large labor power countries reduce, and impact on China's textile industry. The textile industry will probably face a new round of brand shuffling. It is particularly important to speed up the process of Intelligent Manufacturing in China's textile industry.

At the same time, the protection of the stability of cotton planting area is also very important, mainly because if the acceleration of the intelligent manufacturing process in textile industry will change the existing market structure, once the level of China's intelligent manufacturing is lower than that of the whole world and lower than that of the United States, the re industrialization of the United States will increase the amount of cotton and reduce the outsourcing. Under the condition of losing comparative advantage, China can only continue to develop the domestic demand market, and even increase the intensity of feeding agriculture.