A semi-annual profit forecast from a leading colored spun yarn maker has unexpectedly unveiled the deep logic of profit transmission along the textile supply chain. On July 3, Huafu Fashion disclosed that it expects H1 2026 net profit attributable to shareholders to range from RMB 160 million to RMB 200 million, a year-on-year surge of 537.51% to 696.88%. Behind this figure lies not a simple market recovery, but an interplay of raw material costs, order elasticity, and capital operations.
The Positive Feedback Loop of Cotton Price Hikes and Order Recovery
Industry data shows that the average spot price of domestic cotton in H1 2026 rose about 12%-15% year-on-year, directly pushing up raw material costs for colored spun yarn. However, Huafu's profit elasticity came not from price hikes but from order volume recovery. The company explicitly stated that rising cotton prices during the period led to a recovery in orders compared to the same period last year. This reflects a classic 'buy on rising prices' logic: downstream apparel brands and traders tend to lock in supplies early during a cotton price upcycle to avoid further cost increases, thereby boosting yarn makers' production scheduling and shipments.
Notably, the colored spun yarn industry is characterized by 'small batches, many varieties,' making the marginal improvement effect of order recovery on capacity utilization extremely significant. When the operating rate rises from 70% to 85%, fixed costs are diluted, and unit gross profit increases at a steeper slope. As a major capacity holder in this niche, Huafu's economies of scale have been fully amplified in this cycle.
The Real Engine: RMB 160 Million Investment Gain
Order recovery is just the 'base color'; the real driver behind the more than five-fold net profit surge is a non-recurring gain of approximately RMB 160 million from investment income. The announcement clearly states that the year-on-year net profit increase mainly came from investment gains realized in the first half. This means that if this one-time gain is excluded, the profit from core operations might be only flat or slightly lower than the same period last year.
This profit structure shift serves as a critical warning for industry analysts and buyers: when evaluating a textile company's financial health, one must distinguish between 'earned money' and 'changed money.' Investment gains from asset disposals, equity transfers, or fair value changes of financial instruments are not sustainable. For Huafu, whether H2 2026 performance can maintain high growth hinges on cotton price trends and actual downstream demand.
Regional Reactions and Price Expectations
Feedback from fabric hubs like Keqiao and Shengze indicates increased inquiries for pure cotton and blended yarns since Q2 2026, but actual transactions haven't surged. Some traders report downstream garment factories are adopting a 'buy-as-needed' strategy with little enthusiasm for bulk stockpiling. This suggests Huafu's order recovery is more structural—likely from replenishment needs of specific clients like fast-fashion brands—rather than a full industry recovery.
On cotton prices, data from the National Cotton Market Monitoring System shows a 3% reduction in domestic cotton planting area for 2026, coupled with weather disruptions in the main Xinjiang region. The supply-tightening expectation before the new crop arrives provides a window for yarn makers to sustain order momentum, but it also means continued cost pressure. For dyeing and fabric links, rising upstream yarn prices will compress terminal garment quotations, squeezing margins in intermediate segments.