Cotton Price Surge Drives Performance Recovery: Huafu Fashion's H1 Net Profit Expected to Soar Over 500%, Non-Recurring Gains Key Driver

A mid-term performance forecast from a leading yarn-dyed yarn manufacturer has unveiled how cotton price fluctuations reshape the profit-and-loss statements of the textile industry. Huafu Fashion's announcement on July 3 shows its net profit for the first half of 2026 is expected to range from RMB 160 million to RMB 200 million, representing a year-on-year increase of 537.51% to 696.88%. This figure encapsulates a dual narrative of raw material cost transmission and capital operations.

Background

Huafu Fashion's explosive profit growth is not an isolated case. During the reporting period, domestic spot cotton prices continued to rise, directly boosting order recovery for cotton-based products like yarn-dyed yarn. The company's announcement explicitly states that orders have rebounded compared to the same period last year, providing direct evidence of improved core business. However, the key driver pushing the growth rate to extreme levels is approximately RMB 160 million in investment income—this non-recurring gain accounts for the majority of the period's net profit.

This implies that if investment income is excluded, the company's core business net profit may be at breakeven or only marginally profitable. For buyers and downstream fabric mills, the cautionary signal is clear: the high profit growth at upstream companies does not fully reflect the true health of the textile manufacturing sector. Whether cost-driven price increases are sustainable depends on the resilience of end-consumer demand.

Industry Impact

From a supply chain transmission perspective, rising cotton prices are cascading layer by layer: from upstream ginners to cotton spinners, then to fabric mills, and finally to apparel brands. As a leading player in the yarn-dyed yarn segment, Huafu's order recovery partially confirms restocking demand in intermediate links. However, the profit structure's heavy reliance on non-recurring gains also exposes the fragility of core business profitability.

For fabric clusters like Keqiao and Shengze, this signal means rising raw material costs are squeezing the profit margins of the weaving segment. If cotton prices remain elevated, small and medium-sized weaving mills may face a dilemma of 'having orders but fearing losses.' At the same time, the cost advantage of chemical fiber substitutes will become more pronounced, potentially driving a temporary surge in demand for products like polyester staple fiber and viscose fiber.

Practical Recommendations

For Buyers - Monitor the price spread between cotton and chemical fibers. When cotton prices consistently exceed those of chemical fibers, consider adjusting procurement formulas to increase the proportion of blended or pure chemical fiber fabrics. - Decompose supplier quotes for cotton-based products like yarn-dyed yarn into 'raw material cost pass-through' and 'processing profit' components to avoid overpaying due to inflated market sentiment. - When signing long-term contracts with major mills like Huafu, include price adjustment clauses to partially transfer the risk of cotton price fluctuations upstream.

For Foreign Trade Companies - Overseas clients are more sensitive to cotton prices. Clearly state 'cotton price adjustment clauses' in quotations to avoid order losses caused by raw material price volatility. - Use Huafu's performance case as a negotiation tool to demonstrate current cost pressures in the cotton textile supply chain, aiming for better transaction prices or payment terms. - Closely monitor the financial health of suppliers with high proportions of non-recurring gains to avoid delivery risks stemming from their weak core business performance.