资讯 1 10 英文网 307 Feature 549119 A deeper look at the ongoing recovery of textile business 2015-05-25 11:09:53 yangfang
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A deeper look at the ongoing recovery of textile business

Wu Faxin 

General Manager of HongKong JKN International Group 


Recently, not only the sales performance in the textile market is remarkable, the textile stocks became bullish as the stock exchange’s baseline rises. Therefore, marketers believe the textile industry has bounced back, but some analysts said that the market is brewing such change just like the bullish stock market. Is the booming textile market at the infant stage or merely a reflection of wishful thinking? How do we see the truth through the hearsays?


A recent media hype has it that the textile industry is recovering and both cotton consumption and prices will rise. All of sudden, the optimism once again dominates the market, but the author learned from a field survey of textile companies in Henan and Shandong that this is not the case. Textile companies, especially pure cotton textile companies, are not as good as described by the media, and a growing number of incoming orders for particular companies does not mean the recovery of the whole textile industry. Even worse, the textile industry might encounter another torrent of cold wave.


Nowadays, textile companies are looking at the extent of loss, not the extent of profitability. Cotton mills place high hopes on what’s coming next in the spirit of wining by less loss. Many companies are still struggling due to the delayed bank loans, some of which went a step further by remodeling their factory buildings into restaurants and nightclubs. According to the field survey, a large number of 32-count low-end carded yarn producers are shutting down, so are most of weaving plants, leaving a large number of laid-off female workers. Even those struggling textile companies also see a remarkable change in the mix of their orders. The pure cotton yarns are no longer the dominant products and are increasingly replaced by chemical fiber yarns and blended yarns. In large-sized cotton warehouses, we see cotton piled up and moving out very slowly. Under such circumstances, are you still optimistic?


One of my recent talks with business owners in Henan and Shandong suggests that some companies are seeing a growing number of incoming orders, but the profitability remains unchanged, resulting in a situation where price war goes rampant. For example, I found from a field survey that a 30000-spindle cotton mill produces 32-count carded pure-cotton (high-grade) gray yarns for knitting purposes and sells most if its products to Foshan of Guangdong. Although this company has sufficient orders to fulfill by the end of June (some orders from nearby factories that have shut down), these orders generate only merger profits, because this factory uses high-quality Xinjiang cotton as raw materials in fear of customer complaints. The purchasing manager of the mill said they will not receive orders if they use ordinary cotton and therefore they go to Xinjiang for high-quality cotton every two or three weeks and escort carefully selected cotton back to his factory in Henan. Despite the growing number of incoming orders, the boss of this mill desperately wants to shut down his business given the formidably high costs of raw materials and procurement, which will result in another group of laid-off female workers. So, where will low-grade cotton be headed for?


The same is true of cotton mills in south China.


Several major cotton traders in south China have put their money intended for procurement of cotton and cotton yarns into the booming stock market in an effort to make quick money. Some companies ask suppliers to deliver cotton yarns to sizing mills before selling them right on the spot at a lower price in order to generate more cash that they can use to scoop lucrative profits from the booming stock market before paying the price of cotton yarns back to the suppliers. I am worried that once the stock market goes cool, the real economy will suffer and more debt-ridden bosses will flee for good in the next two years. Currently, I see bosses of some cotton mills in south China are in no mood to fulfill orders but instead waiting to make quick money out of the booming stock market.


When the domestic market goes down and the cash chain is breaking up, foreign textile companies are planning to flood Chinese market, as they gradually familiarize themselves with the way of doing business in China. This, coupled with the strong international financial capital and the industrial capital, is squeezing Chinese textile companies out of the industry. For example, along with the establishment of Shanghai Free Trade Area, foreign companies are applying for bonded business of cotton and cotton yarns in FTA, a move that will deliver a heavy blow to the low-end cotton mills in Shandong, Henan and Hubei due to the imported yarn pouring in. What’s worse is that several Chinese companies that have gone global several years ago are surprised to find that they can still make profits by transporting their products all the way back to China. How did they do that? According to the industry media reports, Zhejiang-based enterprisers have put their cotton mills in South Carolina into operation. After one year of construction and equipment installation, Zhejiang-based Keer Inc. has put its 4000-m2 modern facility (including shops, technical center and office buildings) into operation recently and produced the first batch of yarn in late February 2015. By the end of April, 32 rotor-spinning machines in the first shop of the company have been put into operation, with a capacity of 90 tons per day or 30000 tons per year. After the commissioning, most of the company’s products will be shipped back to China since the American market has yet to be tapped. The first group of 7 containers has come to a Chinese port on April 25, 2015, with the second and third groups on the way. Once the company set a good example of making profits in China by operating out of China, wouldn’t it be true that domestic cotton mills will be forced out of the industry? Where will domestic cotton be headed for as a result?


With all players dead, what’s the point of more inventories? Is this really what we want to see?


A friend of mine is planning to invest in textile business in China, with focus on 80-count combed compact-spun pure cotton yarns. But banks are not willing to provide loans to textile companies, so funds have to be raised from inside or from the private sector. This friend boss managed to have funds and equipment in place with painstaking efforts, only to encounter another problem of limited access to high-grade cotton at home, thus having no choice but seek high-quality and cost-effective cotton all over the world. This lifelong textile businessman sighed that the low-end market has been given away and cotton quality does not support the corporate efforts to move up the value chain. What can you do with the low-quality cotton when you only need high-quality cotton?


The recent bounce-back of cotton futures’ price at Zhengzhou Commodity Exchange is both necessary to restore the technical indicators after the historic low and due to the retroactive price markup of cotton after the bounce-back of bulk commodity’s prices, but the baseline of cotton-textile value chain remains unchanged. The market will scale back once anything goes wrong. The 117th Canton Fair commencing from April 15, 2015 shows that both market prospect and order volume are still worrying.


According to the latest statistics released by Chinese Customs Administration, China’s cotton import volume increased 100.32% in March month over month and 39.59% year over year. Meanwhile, against the backdrop of oversupply and high levels of inventory worldwide, it is highly unlikely to see another wave of considerable size. Therefore, the cotton and textile industries still have a long way to go before the real spring comes.