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Insight | Time:Dec 1 2016 8:40AM
Yarn and fabric mills struggling amid high cotton price
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Commodity market is bullish in 2016 and coal prices increase by 200 percent, offset the decrement for four years in on year. Although cotton prices are not that strong, the upswing is obviously seen. Currently, the mainstream level of Xinjiang grade-3128 cotton prevails at 16,000yuan/mt, close to the level in Oct, 2014. Who is benefited from the bullish cotton market?

Yarn and grey fabric profits condition:
1. Cotton yarn profits

Note: the profits in the charts were spot profits, different from the actual profits of mills.

(1). Yarn profits were relatively stable in 2015, while in 2016, profits fluctuated a lot;
(2). Profits in 2015 were better than that in 2016 in general. In 2015, profits were averaged at 174.2yuan/mt and in 2016, profits narrowed to 3.6yuan/mt.
3. For the whole year of 2016, the profits became positive and were better in the second half year.

2. Cotton grey fabric profits

(1). In 2015, fabric mills’ profits were stable and positive, while in 2016, profits were averaged at 0.03yuan/m. In Dec 2016, profits are expected to be negative;
(2). The profits were worse in the second half year of 2016 compared to first half year, to witness continual losses.

Therefore, the upswing of cotton prices is not good for downstream yarn and fabric mills, who face large decrease of profits and even deficits. In the second half year, cotton yarn prices response quickly and follow up after cotton prices increase, so profits improve, but the upward trend does not pass on grey fabric market and spot profits are basically negative. In Shandong and Hubei, more small and medium plants, mainly with rapier looms, face losses, to see a deficit of 1,000-1,500yuan/set, or highly to 2,000yuan/set.

The sharp rise of cotton prices spurs up the market confidence the trading sentiment somewhat, but for downstream plants, profits are hard to see or even deficits are witnessed. The higher feedstock does not mean improved profits for downstream products.
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