Yarn inventories in China and textile-producing countries have been exhausted. Moreover, the US ban on imports of products derived from Xinjiang cotton has caused an increase in demand for yarn. Along with that, the economic development stimulus packages after the Covid-19 pandemic of developed countries and the widespread vaccination also made the world economy recover, and the textile and garment demand prospered again after the broken chain in 2020.
Comparing the difference between cotton prices and yarn prices in the same period of 2019, 2020, 2021 may show the business efficiency of yarn enterprises. In the past 3 months, the difference between the price of yarn and the price of cotton is about 1 USD/kg, which means that businesses have made a profit. Thus, looking at the chart, it can be seen that the difference in 2019 was about 0.6 - 0.7 USD/kg, so if any enterprise can buy cotton materials at good prices, manage production and sales costs well, then may only be profitable. In 2020, the difference was 0.3 - 0.6/kg USD, most businesses were at a loss. In 2021, the difference was 1.1 - 1.25 USD/kg, yarn businesses were all profitable.
More than 70% of Vietnam's yarn industry output is for export, of which exports to the Chinese market account for about 55-70%, depending on the period. On the other hand, the main input material of the yarn industry is cotton, which is completely imported with more than 50% coming from the US, the rest from other countries such as Brazil, India, Australia, West Africa. Obviously, this shows that Vietnam's yarn industry is easily affected by fluctuations in economy, politics, and trade relations among countries. Therefore, in order to assess the growth rate of Vietnam's yarn industry in 2022, it is necessary to consider some of the following influencing factors:
International economic organizations have made optimistic forecasts about the economic recovery of major countries such as the US, China and EU countries. These are all large textile and garment consumption markets of Vietnam. According to the report in October 2021 of the International Monetary Fund (IMF), the growth rates of the US, China, and the EU were 5.2%, 5.6%, and 4.3% respectively in the year 2022. The economic recovery of these countries is the driving force for the growth of textile and apparel demand, leading to an increase in the demand for yarn. In contrast, the economic recovery of developing countries, including many textile producing countries, will be slower. Thus, textile demand may grow faster than textile supply.
China is still Vietnam's largest yarn import market, accounting for 55% of yarn export turnover. In contrast, Vietnam is also the largest yarn supplier to China, accounting for 37% of the country's yarn imports in 2021. In the next five-year textile and garment development plan, China will not focus on "quantitative growth" but focus on "quality development" to create more added value in the supply chain, prioritizing develop “green” and “sustainable” by using recycled and “organic” materials, minimizing emissions to the environment. Therefore, China will tend to focus on the production of high-index yarns. At the same time, this country will increase the import of low and medium index yarns or shift the production of these yarns to other countries. In the short term, the production shift cannot be done immediately, but it is more likely that China will increase yarn imports from other countries in 2022.
The trade relationship between the US and China, the two largest textile and apparel supply and demand countries in the world, is another influencing factor. In 2021, the US and China reached a Phase One deal, under which China committed to buy a large amount of US cotton. Therefore, it is likely that the Phase Two Agreement will be signed by the end of this year, creating a temporary peace situation, opening the flow of trade between the two countries to avoid economic damage. This will also create a favorable environment for the growth of global textiles.
The yarn market, after its outstanding growth in 2021, may gradually find a balance point in 2022. With the input cotton price expected to be high, the yarn price will be adjusted to redistribute profits between buyers and sellers. Yarn production and trading activities in 2022 are expected to grow and profit margin efficiency is estimated at only 30-50% compared to 2021.
Compiled by VietnamCredit