International news: Global yarn market generally not optimistic
The global yarn market is generally struggling at the moment and although prices showed signs of stabilisation in some regions last week, this may be related to the recent increase in prices for raw cotton alternatives, which has discouraged textile mills from reducing their offers.
Product inventories at yarn mills are still generally above conventional levels, and the momentum of the improvement in Chinese yarn mills' production and sales a few weeks ago has started to recede, with epidemic prevention and control continuing to put pressure on domestic textile demand and exports being affected by the ban on Xinjiang cotton. As the Chinese textile downstream (knitting and weaving) is extremely important for other countries, the difficulties encountered in the Chinese market also put pressure on the textile industry in other regions.
In this respect, orders from wholesalers are particularly important. It has become extremely clear that due to overbooking in 2021 and the first half of 2022, stocks of all types of products from textile mills have been transferred in large quantities from the origin to the distribution area, and cotton is part of this. Now, wholesalers are concentrating on clearing their inventories, a practice that has undoubtedly added to the market's concerns about downstream demand in the context of global macroeconomic uncertainty. As a result, orders across all segments of the textile industry have stalled.
Looking at retail sales data from the US, October this year saw a 1.3% increase from a year earlier and an 8.3% increase from a year earlier, which was better than market expectations. This may simply reflect the impact of inflation on prices, i.e. retail sales growth exceeding retail sales volume growth, but not a true reflection of falling market demand. Looking at the retail sales figures for October, retail sales of clothing and clothing peripherals were essentially flat year-on-year and up 3.1%. So if retail demand in the US, the world's largest consumer market, is not increasing in volume terms, why has it been able to remain stable even as the recession continues?
Clearly, if retail spending remains relatively buoyant going forward (an idea that is not realistic with the Fed continuing to raise interest rates), orders should return to a relatively normal level once current retail inventories have been depleted. The risk and opportunity here is that if inventories are cleared excessively in the middle of the supply chain, then the market as a whole will be very sensitive to the reaction to increased demand, and this will need to be watched more closely at a later date.
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