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What will happen after the yarn inventory is cleared?

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According to the analysis of foreign industry institutions, the global yarn market is generally struggling. Although prices in some regions showed signs of stabilization last week, this may be related to the recent price rise of raw cotton substitutes, which makes textile mills no longer willing to lower their prices.

At present, the product inventory of the cotton mills is still higher than the normal level. A few weeks ago, the momentum of improvement in production and sales of China's cotton mills began to recede. The prevention and control of the epidemic continued to put pressure on domestic textile demand, and the export was affected by the ban on Xinjiang cotton. As China's textile downstream (knitting and weaving) is extremely important to other countries, the difficulties encountered by the Chinese market also put pressure on the textile industry in other regions.

In this regard, orders from wholesalers are particularly important. The fact is very clear. Due to the over booking in 2021 and the first half of 2022, the inventory of various products of the textile mill has been transferred from the origin to the sales area in large quantities, and cotton is also a part of it. Now, wholesalers are focusing on clearing inventory. In the case of global macroeconomic uncertainty, this practice undoubtedly makes the market more worried about downstream demand. As a result, orders in all sectors of the textile industry have stagnated.

From the US retail data, in October this year, the month on month growth was 1.3%, and the year-on-year growth was 8.3%, which was better than the market expectation. This may just reflect the impact of inflation on prices, that is, the growth of retail sales exceeded the growth of retail sales, but it does not really reflect the decline in market demand. From the retail data in October, the retail sales of clothing and clothing accessories were basically flat on a month on month basis, with a year-on-year growth of 3.1%. Therefore, if the retail demand in the United States, the world's largest consumer market, does not increase in quantity, why can it remain stable even if the economy continues to decline?

Obviously, if retail consumption remains relatively active in the future (this idea is not realistic when the Federal Reserve continues to raise interest rates), orders should return to a relatively normal level once the current retail inventory is exhausted. The risk and opportunity lies in that if the inventory clearing in the middle link of the supply chain is excessive, the whole market will be very sensitive to the increase in demand, which needs more attention in the future.

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