Textile and clothing exports consider the confidence of China’s manufacturing industry and are expected to achieve low-cost and low-profit operations in 2009

Textile and clothing exports consider the confidence of China’s manufacturing industry and are expected to achieve low-cost and low-profit operations in 2009

Market confidence is gradually recovering amid testing.
Since December 2008, stimulated by a series of news such as national investment of 4 trillion yuan, interest rate cuts and tax cuts, steel prices have begun to rebound, steel mill orders have begun to pick up, and sellers have begun to stock up; real estate in Shenzhen, Shanghai, and Beijing Transactions began to increase in volume; in January 2009, sales of some foreign brand cars picked up; and the Baltic Dry Bulk Shipping Index BDI, which reflects import and export trade, also rebounded to 889 points after falling to 663 points…

But this is just a test. In the second half of 2008, faced with commodity prices falling by nearly 70% in just a few months and orders plummeting, few people dared to assert that the economy had reversed. What people are worried about is: In 2009, the economy continued to decline, and exports, one of the “Troika” of China’s economy, remained sluggish.

At least, from now on, this possibility is very high.

Relying on the comparative advantage of low labor costs, China has joined the ranks of major manufacturing countries. Textile and clothing, electromechanical, automobile, steel…the export proportion of these industries is increasing. If exports are really sluggish, these industries will inevitably be affected.

In 2009, insufficient demand will once again become a fetter on the economy and become a suspense affecting the growth of textile and garment, mechanical and electrical, automobile, steel and other industries.

Textile is expected to achieve low-cost and low-profit operation

There are two main raw materials for textile products: cotton and chemical fiber. After a sharp price cut in 2008, the price of textile raw materials fell to the bottom. Although export orders have dropped sharply, once the pattern of low-cost and low-profit operation can be continued, textile companies that made no mistakes in operations in 2007 and 2008 will be able to at least operate at a low profit in the first half of 2009. ​

Orders are still insufficient

Cotton spinning company Huafang Textile announced on October 31, 2008 that in 2008, affected by the U.S. subprime mortgage crisis, as well as the appreciation of the RMB, the continued rise in raw material prices, and rising transportation costs, product profit margins were further compressed; in addition, Macroeconomic policy control factors such as rising loan interest rates have increased financial expenses caused by the company’s credit, resulting in a greater impact on the profitability of the company’s main business in 2008. The company’s net profit in 2008 is expected to decrease by more than 50% from the previous year’s 51.8 million yuan.

The same is true for the chemical fiber industry. PTA is the raw material for polyester chemical fiber. Since Hualian Sanxin, Asia’s largest PTA manufacturer, resumed production, only one of its three production lines has been opened. Although it is the peak season in China Textile City, business operators have been closing their doors recently. The business of Hongcai Textile Company, which sells curtain fabrics, in 2008 was half that of the previous year. Ms. Chen, who runs a suede business, said her sales in November last year were only half of what they were at the peak.

In 2009, the policy environment of the textile industry has undergone great changes. Since August 1 last year, the export tax rebate rate has increased from 11% to 14%. In terms of exchange rate, since July 2008, the RMB/USD exchange rate has been hovering around 6.85. In the first half of the year, the cumulative appreciation of the RMB exceeded 6%. A stable exchange rate helps companies receive orders overseas. At the same time, the central bank relaxed its RMB lending policy and lowered loan interest rates.

However, analysts believe that in 2009, the factor that limited the performance of the textile industry was not cost and policy, but demand. ​

The danger of the “roller coaster” of raw materials is eliminated

S Yihua is mainly engaged in the production and sales of polyester chips and polyester fibers, and produces purified terephthalic acid (PTA), the main raw material of polyester. Although it has good industrial supporting facilities, the company is in trouble due to the international crude oil price falling from 147 US dollars per barrel to more than 30 US dollars per barrel. The company announced that it had a net loss of 247 million yuan in the third quarter of 2008.

After half a year of “cleaning”, the cost of textile raw materials has dropped significantly. On December 25, 2008, after the price of Brent crude oil fell to 34 US dollars/barrel, it rebounded slightly to 38 US dollars/barrel; the price of cotton dropped from more than 1,300 yuan/ton to 1,000 yuan/ton; the price of dye returned to the level at the beginning of the year; the price of coal returned to the level at the beginning of the year; The price dropped from 1,000 yuan per ton to 500 yuan. Data provided by Hualian Sanxin shows that with this round of decline in oil prices, PX, PTA, long fiber and short fiber fell by 66%, 56%, 48% and 43% respectively. In the chemical fiber industry, the decline in raw materials exceeded that of end products.

In 2008, the biggest difficulty encountered by textile companies was that raw materials surged and then plummeted. This will not happen again in 2009 due to weakening demand. This will allow companies with orders to maintain small profits. ​

Viscose fiber is no longer popular

Viscose fiber is the second largest category of chemical fiber products after polyester. Viscose fiber is a variety of chemical fibers that has the closest wearing properties to natural fibers. It is commonly known as “artificial cotton”. Almost all viscose staple fiber products in my country are supplied to the domestic market, and the export volume is very small. Exports have played a great supporting role in stabilizing the domestic viscose filament market.

In 2006 and 2007, due to the rapid rise in viscose prices, the performance of related listed companies grew rapidly. However, rising prices have brought about rapid expansion of production capacity and rising raw material prices, resulting in poor performance of listed viscose companies in 2008.

Chemical Fiber is the largest viscose filament manufacturer in China. The company forecast that the annual loss in 2008 would be between 210 million yuan and 240 million yuan, while in the middle of 2008 the company’s net loss was only 77.57 million yuan. Company analysis believes that since 2008, affected by the international financial crisis, international and domestic demand for textiles has declined.The viscose fiber market continued to be sluggish, the company’s product sales were sluggish, and the prices of its main products, viscose staple fiber and spandex fiber, dropped significantly.

There are currently 8 listed companies in the domestic viscose industry, including Chemical Fiber, Jilin Chemical Fiber, Nanjing Chemical Fiber, Shandong Hailong, ST Danhua, Hubei Jinhuan, Nanjing Chemical Fiber, Baoding Swan, and Aoyang Technology. Analysts believe that in 2009, the viscose industry will still struggle.

Clothing exports and domestic sales are not optimistic

Clothing companies were also troubled by demand in 2009.

In 2007 and 2008, the performance of the apparel industry, which relied more than 40% on exports, was mainly troubled by costs. The appreciation of the RMB is the main factor affecting the competitiveness of the garment industry. From the beginning of 2008 to the end of October, the RMB appreciated by 6.9% against the US dollar and by 22.18% against the euro. The sharp appreciation of the RMB against the currencies of major trading countries has, on the one hand, reduced the export competitiveness of my country’s textile products, leading to a decline in order growth; on the other hand, as the bargaining power of domestic textile companies is generally weak, it is difficult to pass on the impact of the appreciation of the local currency through price increases. The cost has increased, and the gross profit margin has declined seriously.

Ordos stated in the announcement that due to the multiple factors of RMB appreciation, declining export tax rebates and rising labor costs, the domestic textile industry, including the cashmere industry, has been severely impacted, and a wave of bankruptcy in the clothing industry has occurred in some southern provinces. .

In the second half of 2008, the international and domestic economic situation has undergone tremendous changes. With the economy facing a contraction, policies have shifted since November, with warm winds blowing frequently. In terms of taxation, the policy of reducing export tax rebates since 2007 has been changed. The export tax rebate rate for textiles and clothing has been raised to 14% after two adjustments in August and November. At the same time, a moderately loose monetary policy was implemented, and the RMB remained stable against the US dollar.

In 2009, another favorable factor for the garment industry was the sharp drop in raw material prices. For example, at the end of October 2008, the price of viscose staple fiber was 15,200 yuan/ton, and the price of polyester staple fiber was 7,200 yuan/ton, down 30.28% and 36.84% respectively from the beginning of the year.

Despite this, many analysts are still not optimistic about the apparel industry in 2009. Relevant persons from the National Textile Product Development Center believe that the export and domestic sales situation of the textile and apparel industry will continue to deteriorate in 2009. As far as exports are concerned, negative growth in my country’s textile and apparel exports in 2009 is relatively certain; domestic sales are also not optimistic. In the context of economic slowdown, people will generally reduce clothing consumption expenditures.

Since joining the WTO, my country’s textile and apparel production capacity has expanded rapidly, and the industry’s oversupply contradiction has become prominent. From 2003 to 2007, the average annual compound growth rate of fixed asset investment in the textile industry and clothing manufacturing industry reached 25.63% and 39.36% respectively.

A large amount of excess production capacity is mainly absorbed through exports. As consumption in European and American countries has fallen into a downturn, demand for textiles and clothing has begun to decline. At the Autumn Canton Fair, the total transaction volume of textile and apparel products was US$3.42 billion, down 39.3% from the previous session. Among them, the turnover of the European Union and the United States decreased by 28.6% and 36.1% respectively.

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