Narrowing cotton spreads at home and abroad benefit color spinning companies

According to foreign institutions' forecasts, global cotton production will decline by 7% year-on-year from 2013 to 2014, while demand will increase by 2%, which will further boost foreign cotton prices. As textile spreads at home and abroad continue to shrink, color spinning companies will benefit.

After January 2013, as the price of foreign cotton rose and domestic cotton prices fell, the spread between the two countries continued to shrink. From the peak price difference of 5270 yuan/ton at the beginning of this year to the current 3700 yuan/ton, a drop of up to 30%.

Wu Xiaoyu, an analyst of Minsheng Securities's textile and clothing industry, said that since the raw materials for color spinning yarn are mainly cotton, the cost accounts for more than 75%. In addition, the proportion of direct and indirect exports of color spinning companies is as high as 70%. With foreign companies placing orders with reference to cotton prices, the narrowing of domestic and foreign cotton spreads will drive the export prices of color spinning yarn products.

“The smaller the domestic and foreign cotton spreads, the better the company is, of course,” said Zhou Liwen, a representative of Blum Oriental Securities, in an interview with reporters. At present, the company’s direct export products account for nearly 50% of the total domestic sales to various processing plants. There are also some exports in the form of end products.

According to the data, in terms of production scale, Blum Oriental and Huafu Color Spinning have their own production capacity of 800,000 spindles and 1.25 million spindles respectively, both occupying 41% of the total capacity of the colored spinning yarn industry. 36% and 56% of the yarn production capacity has formed a duopoly monopoly in the domestic high-end color spinning industry.

In 2012, due to sluggish downstream demand, lower product prices, and high-cost inventory, the two companies were under pressure and last year's performance fell sharply. In 2013, high-priced inventory commodities and raw materials have been basically digested, and the price of cotton is relatively stable. Color spinning yarn prices have also started to rebound and stabilize this year.

In addition, the value of textile and apparel exports in February was 16.4 billion U.S. dollars, a year-on-year increase of 69%, far exceeding market expectations. The recovery of the textile industry, which continues to be sluggish, is accelerating. For color spinning companies, order growth is also expected to pick up and achieve year-on-year growth.