By Bao Yuanyuan
Two years ago, high cotton price caused textile companies great distress; one year ago, the continuously falling cotton price caught textile companies quite off guard; this year, a price difference of as much as RMB 5,000 Yuan/ton between domestic and foreign cotton once again puts those companies in front of a life-and-death test. The vicissitude of the textile industry is always linked with cotton price. Why do textile companies always get hurt when cotton price fluctuates?
According to statistics from China National Textile and Apparel Council, the price difference between domestic cotton and foreign cotton has kept widening since the beginning of the year, and at the current price, the difference is as much as RMB 5,000 Yuan/ton.
On one hand, the widening price difference makes cotton consuming companies in China more willing to choose imported cotton and cotton yarn as material. Actual sales of domestic cotton, apart from those that go into State-owned Reserves, are not optimistic, and this affects upstream cotton production.
On the other hand, restricted by import quota control, many cotton textile companies are not able to buy imported cotton, and some companies have to use domestic cotton as raw material, which results in the contradiction of high material cost and low product price, directly causing loss in cotton companies and eventually exacerbating the already shrinking demands in downstream cotton market.
Cotton textile companies feel the extent of the influence most directly and strongly. Currently, 40 percent of the cotton textile companies tracked by China Cotton Textile Association suffer losses. Someone from a Chinese cotton textile factory said frankly that cotton raw material already accounted for 70 percent of the company's cost, and, with fluctuating price, the company's gross profit was merely 3 to 4 percent; it was beyond what the company can endure. The fact that domestic cotton is too expensive and imported cotton is not available is forcing some companies to seek other ways out and set up factories in other countries.
Can non-cotton textile companies get away from the influence of the widening cotton price difference? In fact, in spite that polyester staple fiber and viscose staple fiber begin to partly replace cotton with their price and technologic advantages, recent market conditions show that almost all purely cotton textile companies that use all cotton material are making losses, mixed textile companies that use both cotton and chemical fiber are either making slight losses or slight profit, and new fiber companies that don't use any cotton but chemical fiber only maintain certain profit, despite that the profit has decreased significantly compared with that years ago.
The reporter interviewed a person from local cotton association, and he pointed out the reason: sluggishness of the international market and the high cost of textile companies are the main causes of the depression of the cotton textile industry. The cost of cotton, in particular, accounts for 70 percent of the cost of textile companies. In a certain sense, the price of cotton determines the life or death of textile companies. However, due to the influence of cotton quota management and storage management, Chinese textile companies have to bear a price difference of thousands of Yuan for a ton of cotton in international competition. That's why most textile companies are suffering losses despite that China's textile manufacturing capability is rather advanced.
Can't the textile industry, after all these years' development, bear a strike by the price of cotton? How to get out of the current conundrum?
Industrial experts believe that in order to break the bottleneck of raw material and ensure stable development, industrial adjustment and upgrading is now unavoidable. Medium and small businesses throughout the manufacturing links that have low profit margin, low concentration, and weak resistance against risk in the market are particularly susceptible to the influence of the fluctuation of raw material. Under current conditions, these companies should not only pay close attention to the market quotation of cotton, but also attach importance to adjustment of fiber material structure. For instance, in the meantime of maintaining their cotton textile business, they may also make more effort to develop and use alternative materials, changing their total dependence on cotton.
Besides, increasing the added value of products through brand building so as to offset the pressure of raw material cost is also an effective method. Judging from the interim report warnings of more than 50 publicly listed Chinese textile and apparel companies, branded apparels, particularly men's clothing, have maintained stable and strong growth, and the net profit of some companies, Septwolves for instance, is estimated to grow as much as 50 percent. It's not difficult to see that against the slide of the textile industry brand public apparel companies still maintain excellent business growth. For branded clothing, cost has ceased to be a main criterion long ago.
The gross profit of brands is relatively higher and has more room for price rise. It's because of the conundrum and difficulty that many companies are forced to build up their own brands so as to break the restriction of the fluctuation of raw material price. In the future, cotton price is still volatile. It would still take some time for the fundamentals of the textile industry to recover. Therefore, textile companies need to be forward-looking, make active adjustment, and accelerate reform and upgrading, so as to avoid risks caused by material price fluctuation as much as possible.
