Textile and Apparel: Exports are expected to grow at a new high, and growth is expected to slow

Business Club August 21st

1. Export volumes surpass $100 billion, but growth is expected to slow down. The cumulative export volume of textiles and apparel has continued to rise. From January to July, the total exports reached $10,966 million, crossing the 100 billion yuan threshold. Looking at the trend, since the peak in April, the month-on-month growth rate has shown signs of deceleration over the past three months, with the export orders index continuing to decline. This indicates that the weakening impact of external demand is becoming more visible. In terms of industry classification, textile products have outperformed apparel in cumulative exports this year, a shift that became evident in June. We believe this change is driven by rising upstream raw material prices, which have pushed up the cost of yarns and fabrics, leading to higher downstream product prices due to the transmission effect.

2. Domestic demand remains strong. A significant increase in residents’ income has been a key driver behind sustained domestic demand. With ongoing reforms in income distribution, consumer confidence is expected to improve further. Additionally, as many provinces and cities have raised the minimum wage, the consumption power of low-income groups is gradually increasing, contributing to continued growth in domestic spending.

3. Output continues to grow rapidly, and fixed asset investment remains high. From January to July, yarn output reached 15.0841 million tons, an increase of 15.29% compared to the same period last year. Cloth production totaled 37.318 billion meters, up 21.25% year-on-year. Apparel output reached 16.6 billion units, a 15.32% increase from the previous year. Given the strong domestic demand, fixed asset investment in the textile and apparel sector grew at a faster pace in July. We expect this investment momentum to remain stable in the coming months.

4. Raw material prices show mixed trends, with cotton prices expected to decline after new supplies enter the market. Due to the substitutable nature between staple fiber and cotton, the continuous rise in cotton prices has created room for staple fiber, causing a sharp increase in viscose staple fiber prices in earlier periods. However, the upward trend in viscose staple fiber prices has now come to an end. The spot price of Guomian 328 remained on an upward trajectory, closing at RMB 18,200 per ton at the end of July, up slightly by 0.52%. Meanwhile, the market price of viscose staple fiber dropped from its peak of RMB 20,300 per ton in April to RMB 17,250 per ton by the end of July.

Investment Suggestions: Key economic indicators from major global economies have not shown significant improvement, and declining demand is expected to continue limiting export growth. Factors such as tighter economic policies in Europe, higher real effective exchange rates, rising labor costs, and the removal of tax rebates for certain goods are all contributing to this trend. As a result, we anticipate a slowdown in export growth in the next quarter. We maintain a “neutral” investment rating for the overall textile and apparel industry. However, we remain optimistic about individual stocks with strong brand presence and expansion capabilities, such as Zhebao (25.63, +0.03, +0.12%), Septwolves (32.42, -1.32, -3.91%), and Meibang (24.60, -0.90, -3.53%). We will conduct a detailed analysis of these companies in our upcoming report.