At present, behind the fact that the cotton price continues to fall below the processing cost, resulting in the delayed effective repair of processing profits, is the loss of discourse in the game between the ginning capacity occupying cotton resources and the downstream textile industry. Therefore, we have to think about the other side of the game, that is, the essence of the textile industry of spinning, weaving, printing and dyeing and garment making - the longer generation processing link of fiber from chemical workshop, farmland and pasture to fashion industry.
In the past two years, we have ushered in the restoration and return of the profits of the domestic cotton textile industry. However, looking at the global clothing CPI, its growth rate is stable and low in the long run. Therefore, this round of profit growth is mainly driven by the return of Southeast Asian orders to China under the recovery of clothing consumption after the global epidemic.
Behind the optimism, cotton farmers cashed in their planting profits in October this year, and we saw the bottom-up transmission of profits in the industrial chain. Taking history as a mirror, from the perspective of cycle: with the departure of spring, cold winter may come.
The last round of significant expansion of domestic textile production capacity: over investment and bullwhip effect
After joining the WTO in 2001, with the most perfect cotton textile supply chain, China has experienced a bonus period of textile industry development and become a global textile and garment center.
From 2000 to 2010, with the increase of per capita disposable income, the cumulative retail sales of domestic clothing, shoes and hats increased year-on-year. During this period, it generally reached a double-digit range, with an average growth rate of 19.13%. At the same time, the cumulative export amount of Chinese clothing increased by 14.79% year-on-year. China has gradually assumed the main supplier and consumer of global textiles. While the global market cake has become larger, the domestic textile and garment industry has also shared most of the cake. Under the background of booming domestic sales and foreign trade, the total accumulated profit of the domestic textile industry has an average year-on-year growth rate of 45.38%.
High profits also further led to the expansion of production capacity. During this period, the domestic average annual production capacity of 8.6335 million cotton spindles was increased, and the cotton consumption once exceeded 10 million tons, accounting for more than 40% of the global total consumption from 25.5% in 2010. The expanded production capacity finally formed over investment, and formed the inventory crisis of the textile and garment industry through the bullwhip effect of the upstream and downstream of the industrial chain.
Because production and consumption are separated in time, space and subject, it is difficult to achieve the perfect match between capacity investment and final demand, resulting in the mismatch between supply and demand. According to the over investment theory, when the economy is booming, investors are too optimistic about the future and continue to increase investment, which eventually leads to production exceeding the effective demand determined by consumption and export, resulting in overcapacity, or capacity expansion exceeding the bottleneck of raw material or labor supply, and the rise of wages and raw material costs erodes the profits of production enterprises.
If there is a supply-demand mismatch caused by over investment in a supply-demand node, the cotton textile industry chain connected by multiple supply-demand nodes will cause more severe fluctuations. In the period of optimism, raw materials stocking level increases, bringing the most upstream supply side of false prosperity, while optimism turns to pessimism, the most upstream supply bubble is facing the most real demand squeeze.
The nearly 10-year development dividend period ushered in extreme optimism after the 2008 financial crisis. With the reversal of macro expectations, the terminal consumer market recovered rapidly. After experiencing low-speed growth in 2008 and negative growth in 2009, garment exports returned to double-digit export value growth in 10 and 11 years, while the domestic consumer market remained stable and maintained double-digit growth, It only declined slightly in 2009.
After 2010, the high internal and external cotton price difference and absolute cotton price further squeezed the production profits of the textile industry. Other production costs such as labor costs faced the textile capacity competition gradually expanding in Southeast Asia, and the market order distribution gradually shifted to Southeast Asia. At the same time, with the slowdown in the growth rate of China's domestic textile and garment end consumption, the global textile and garment end consumption has also fallen into a growth bottleneck, and the growth of market scale is limited.
The domestic expanded textile production capacity far exceeds the effective demand that the market actually needs to meet. At the same time, under the action of the bullwhip effect, the upstream suppliers in the industrial chain still maintain a more optimistic stock demand, resulting in the inventory crisis. After 2011, domestic and foreign trade weakened rapidly, while the growth rate of fixed investment in the textile industry remained at a growth rate of more than 10%, and the domestic new cotton yarn production capacity remained at more than 10 million spindles in 11-12 years. However, the inventory of the textile and garment industry accumulated significantly, and the inventory of finished products maintained a double-digit year-on-year growth. At the same time, the profit growth of the textile industry declined rapidly.
Excessive investment and bullwhip effect not only make the domestic textile and garment industry fall into inventory crisis. In the context of lower profits, there has been a long-term decline and de transformation of start-up and production capacity. As a result, the domestic cotton consumption decreased from 8.39 million tons in 2011 to 6.044 million tons in 2015. The continuous weakening of the production and marketing gap has driven the cotton price out of the decline for nearly five years. In the environment of outward migration of textile production capacity, the textile industry maintained a cautious attitude, the growth rate of fixed investment slowed down, and the inventory of finished products maintained a low growth rate.
Under the profit support, the domestic textile industry racetrack is crowded again
The trend of capacity shifting is encountering the impact of COVID-19, which has caused a wave of obvious supply and demand mismatch in the global textile industry, which has also accelerated the pace of domestic cotton textile industry chain to a certain extent. The beneficiaries have once again returned to China's textile industry at the time of transformation. Under the impact of the epidemic, the terminal link of the industrial chain first collapsed. After the global tide of store closures hit, it gradually transmitted upward and affected the whole textile and garment industry chain, and the inventory of the industrial chain was facing inventory pressure again.
The consumption of global end-users soon recovered under the stimulation of macro policies. However, in the face of the recovery of demand, the textile industry chain still maintained a cautious attitude, and the market showed a passive de stocking state. While the major garment consuming countries continued to accelerate vaccine promotion, open social distance and release demand, Southeast Asian textile countries faced shutdown due to the out of control epidemic situation, The contradiction between supply and demand of global textiles began to appear, and the price began to rise.
As the beneficiary of order return, the profits of China's textile industry chain began to recover, which stimulated the recovery of the mentality of the industry chain, and the demand for replenishment increased significantly. In October 2021, behind the substantial profit cashing of cotton growers in Xinjiang, we saw bottom-up profit distribution transmission, and the bullwhip effect was once again mapped on this cotton textile industry chain across China. When the inventory cycle of the domestic textile industry changed from de stocking to cumulative stocking, the signs of textile capacity expansion appeared again under the profit support.
According to the statistics of China Textile Machinery Association, the performance of cotton textile related textile machinery industry this year is very optimistic. From January to June 2021, the sales volume of cotton spinning frame increased by 82.2% year-on-year, the sales volume of compact spinning device increased by 88.5% year-on-year, and the sales volume of rotor spinning frame increased by 100% year-on-year. The market performance of the three types of knitting machinery is good, with different growth points.
In the first half of the year, the production and sales of circular weft knitting machine industry were booming, and some enterprises had overloaded production, with a year-on-year increase of 70.6%. In the first half of the year, the warp knitting machine industry was stable and positive as a whole, and the sales volume increased by 29% year-on-year. In the first half of 2021, the sales volume of flat knitting machine industry increased by 220% year-on-year. It is understood that in the third quarter of 2021, most spinning machinery enterprises have full tasks and follow-up orders are good.
The low threshold attribute of textile and garment industry determines the blindness of its operation and production and the disorder of capacity expansion. At present, with the improvement of global clothing terminal consumption, terminals have entered the active replenishment stage. In the process of transmitting the good demand for goods to the upstream, it is amplified by multiple supply and demand links in the industrial chain. Therefore, the actual cotton demand in the most upstream may be overestimated.
From the perspective of production capacity cycle, the domestic textile production capacity has been showing a trend of transferring to Southeast Asia in recent ten years, which has been interrupted by the epidemic. At present, the domestic textile production capacity has expanded significantly due to the recovery of profits. From a long-term perspective, it eventually leads to production exceeding the effective demand determined by consumption and export, resulting in overcapacity. However, we should not ignore the domestic textile industry chain with resilience. Whether the inventory crisis downstream of the domestic textile industry chain will be realized will become a bad point in the market in 2022. We still need to consider the current global complex epidemic environment.
