Cotton Spinning Industry Reports Continued Growth (Part B)

According to data collected from 11,934 statistics-worthy Chinese cotton spinning enterprises surveyed by National Bureau of Statistics of China, total industrial production value of the industry increased 27.39 percent y/y to CNY791.811 billion in Jan.-Aug. 2010 ; The value of goods delivered amounted to $63.016 billion, up 29.11 per cent y/y, 2.57 percentage points lower than the Jan.-Aug. 2009 period; The main business income increased by 29.06 per cent to 776.893 billion yuan; Meanwhile, statistics-worthy cotton spinning enterprises have finished the sales production value CNY 777.2 billion, up 27.95% y/y.

Profits

From Jan. to Aug. 2010, profits of main business of the industry jumped 35.98 per cent to 80.668 billion yuan; total profits surged 66.45 per cent to 37.015 billion yuan. In Aug., enterprises in the cotton spinning sector saw their ratio of profit edged up by 0.14% to 4.76%, exceeding to its pre-crisis highest level. The growth was attributed to an increase in domestic sales and market confidence.

Investment

From Jan. to Aug. 2010, China has made an investment of 57.33 billion yuan in cotton spinning and chemical fibre industry, up by 15.08 percent over the same period last year. Cotton spinning industry registered new projects totaling 1303, down 1.7% than that of the Jan.-Aug. 2009 period, according to the Statistics Center of CNTAC.

As long noted, China's robust manufacturing output was largely being achieved through strong productivity of developed eastern provinces. However, over the past couple of years, China has been fastening its grand western development program, to boost the development of the middle and western land. In 2010, although eastern provinces' investment increased, it did so at a much slower rate than the middle and western provinces. Investment realization of Henan, China's biggest province in terms of investment value, totaled CNY10.07 billion in Jan.-Aug.

Prices of materials and yarn

Materials:

With manufacturing slowly recovering amid improving economic conditions, cotton demand has increased prompting more orders among mills. However, with a deficient supply of cotton in the market, prices extend gains since Oct. 2009. China Cotton Index for 328-grade cotton reached at 21890 yuan/ton.

Cotton prices have been spurred in part by a disappointing Chinese harvest, the world's biggest, held back by rainy weather which set back maturity, and quality, in crops particularly in Henan and Shandong in the east of the country. As of mid-October, 40% of the national crop had been harvested, compared with 60% by then in a typical year. Meanwhile, stocks in the US, the top producer, have been run down as lower prices late in the last decade prompted farmers to switch to grains. The USDA on Tuesday cut its estimate for American inventories at the end of 2010-11 to 2.2m bales, the lowest since 1925.

As more and more cotton mills were begging the government to sell state reserve cotton by auction, as well as to give them import quotas for cotton as soon as possible. Accordingly, the government begun to release 600,000 tons of cotton reserves since Aug. 10 2010.

On November 5, 2010, the A-Index hits 160 and the ICE Index rose to 142.3 cents per pound, which are new records for both indices. The International Cotton Advisory Committee (ICAC) reported that the Cotlook A Index averaged 127 cents per pound in October, 21 per cent more than in the previous month and 89 per cent higher than in October 2009.

Chart 4. China Cotton Index for 328-Grade vs the price with 1% tariff vs the price with slippery value tax in Jan. - Sep. 2010

In a good selling situation, viscose and terylene staple fiber prices still keep rising along with cotton prices. During Jan.-May 2010, the average price for viscose staple fibre in China was CNY 3000/ton higher than 328-grade cotton. In Sep. 2010, the average price for viscose staple fibre in China was CNY 400/ton lower than 328-grade cotton. For terylene staple fiber, during Jan.-May 2010, the average price for terylene staple fiber in China was CNY 5000/ton lower than 328-grade cotton. After June, the average price for terylene staple fiber in China was CNY 8000/ton lower than 328-grade cotton.

Cotton yarn & fabric:

As China was experiencing a rising prices of cotton, cotton yarn prices also have increased for different varieties of yarn, the increase occurred since the beginning of the year. Since October 8th, 20s cotton yarn had been at 30,500 yuan/ton and 32s cotton yarn at 31,500 yuan/ton, and both rose to 31,500 yuan and 32,800 yuan respectively on October 18th. Rayon staple fiber (1.67 dtex/38 mm) continued to increase, and rose by 600 yuan on October 18th to 22,500 yuan/ton on October 18th. Spandex (44 dtex) increased by 500 yuan to 56,000 yuan/ton. The impact of soaring prices of cotton had bad influence, because small mills have not enough material inventories and do not dare accept long-term and large-scale orders.

Grey fabric prices remain stable in the beginning two months of 2010, and jumped in March. The uptrend in grey fabric prices continued for much of the May, with prices moving to an elevated trading range. While the broader cotton market has turned more supportive and sentiment more positive, after Sep.5, concerns of further price hikes of cotton yarns in China have weighed on grey fabric prices day by day.

source:CTEI