Cotton yarn again trapped by the control on energy consumption

Recently, control on both the total amount and intensity of energy consumption, the so-called“dual control”, has attracted much attention. Nine provinces were mentioned in the Target Performance Barometer of Dual Control on Energy Consumption in H1 2021, printed and issued by National Development and Reform Commission in August, and of them, those having close relation to textile industry are Guangdong, Fujian, Xinjiang and Jiangsu. On Sep 9, a piece of news that all-round power restriction and production suspension would be implemented on local textile enterprises from Sep 10 till the end of Sep suddenly spread in Rudong, Nantong City. In fact, it was proved later that it was mainly oriented to the mills which did not pay taxes or did not pay enough. According to CCFGroup, about a half of total capacity was influenced. On Sep 11, NDRC printed and issued the Scheme of Improving the System to Control Both the Total Amount and Intensity of Energy Consumption. Subsequently, the provinces released the related policies successively and started to take measures of electricity restriction on local enterprises.

As the policies escalate, cotton yarn market is greatly influenced, including its production and consumption.

From the perspective of production, cotton yarn mills in Shandong, the biggest cotton yarn production base in China which takes up about 25% of total cotton yarn capacity in China, received notification of electricity restriction during Mid-Autumn Festival holiday. According to CCFGroup, most regions in Shandong have started to restrain the power consumption of yarn mills, including Dezhou, Heze, Changyi, Tai’an and Dongying. The capacity involved was about 30-50%. However, the other two largest cotton yarn producing areas, Xinjiang and Henan, have not restrained the electricity usage of cotton yarn mills. Other regions, such as Jiangsu, Anhui and Zhejiang also control the power consumption, especially in Jiangsu. Mills in Hubei and Hebei have not received relevant notifications.

In terms of consumption, major consumption areas like Guangdong, Jiangsu, Zhejiang and Shandong were seen to limit the use of electricity. In particular, all printing and dyeing plants in Shaoxing were required to shut down until end-Sep from the night of Sep 21 (there are rumors that the production could be resumed from Sep 26). The capacity of printing and dyeing in Shaoxing accounts for about 1/3 of total in China, which plays a significant role in the industry. In other regions, the production of weavers was partly constrained instead of complete shutdown.

According to CCFGroup, overall market demand for cotton yarn has slid since Aug when weavers cut production actively amid inventory accumulation. Before the implementation of the dual control, the operating rate of weavers in Nantong, Jiangsu province has already dropped to 50%, and that in Foshan and Guangdong province down to only 30-40%. The dual control on energy consumption just makes it worse.

In most of the regions, the restriction on production will last to the end of Sep.

The dual control has lowered both the production and sales of cotton yarn, but what is more impacted is downstream market, with more control on weavers than spinners. Therefore, the decrease in demand for cotton yarn is more than that in production. Since Aug, the trades on cotton yarn market have weakened gradually and cotton yarn mills now see inventory accumulation after the orders are finished. Market participants’mindset has also changed obviously and their anticipation to peak season and Double 11 (Nov. 11) is depressed largely. The advance of orders is proved by current market performance and cotton yarn market will be hard to improve even if without the dual control which just makes it worse. At last, cotton yarn price is expected to further decline.