Cotton and fabric supplier Texhong Textile Group said first-half profits would suffer a “substantial decline” after a fall in yarn market prices in China.

The company said the decline had followed the drop in the auction price of the national cotton reserve set by the Chinese government in April, which had had a knock-on effect on the market.

The substantial decline in profits for the first half of 2014 would be mainly attributable to the weak yarn selling prices of the group in the Chinese market, as well as the depreciation of the renminbi, the Hong Kong-based group said.

But, Texhong added, sales volumes of its yarns had risen, reaching 37,000 tonnes in May alone.

The company’s directors emphasised that its first-half results would be impacted by cotton market prices, yarn selling prices and the exchange rate of the renminbi.

“In particular, the cotton market price may be subject to frequent and volatile fluctuation,” Texhong said.