Cash flow under pressure, yarns at continuous losses

The high inventory was followed by fund pressure for yarn mills. Thus yarn prices continued to decline, and losses become more frequent.

The cash flow turned positive since late Jun due to the drop of cotton price from more than 20,000yuan/mt to 15,000yuan/mt. However, the using of high-priced cotton, coupled with price drop of cotton yarns had caused expanded losses for spinners. The cash flow fell to low level again as mills had run out of high-priced cotton in August and cotton yarn prices tended stable, with cotton price rebounded to over 16,000yuan/mt. 100% cotton yarn well-deserved "the most tragic yarn" in 2022.

The feedstock replenishment of polyester yarn usually lasts within half a month, and spot cash flow could basically reflect the situation of actual profit. From May till now, polyester yarn mills have suffered losses for 3 months, with cash flow staying negative at around -300yuan/mt for most of the time. Production cut was continuously seen during this period. On Jul 16, yarn association in Changle called on production cut by 50%. So far, the operating rate of polyester yarn was reduced to 47%, 21% lower than the high level during the year. Obviously, the production cut was inadequate given the sluggish sales, and the losses of polyester yarn hadn’t see any improvement.