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Insight | Time: Nov 25 2022 3:17PM  Editor:Amber
Textile sector could hardly boom despite economci resilience
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Recently, bullish news on macro market appear successively, including further optimization of China domestic epidemic prevention policies, expectations of reserve requirement ratio reduction, various bullish policies on real estate, as well as expectations of a slowdown in interest rate hikes in the United States. The emergence of the policies have a significant boost for stock and commodities market . However, for the polyester industry chain, especially near the end of the year, it is still in an extremely weak situation. Textile sector could hardly boom despite economci resilience. 

According to CCFGroup, business on downstream textiles end-user market was mainly in stagnation, similar to the status in Apr. Only some plants saw some seasonal export orders. Most saw modest orders and there were no buyers even sold under losses. Many players hold pessimistic view toward medium-to-long run market trend. 

Bad downstream business was mainly due to the following three reasons: 

Firstly, the sales of apparels were not very good during this online shopping spree near Nov 11. Later orders were limited. According to the data from some security, the cumulative sales value of top ten sports/casual apparels on the TMALL shopping spree in Nov 2022 fell by 10.8% and that of women鈥檚 wear men鈥檚 wear reduced by 21.1% and 27.5% respectively. 

Secondly, some apparels or fabrics wholesale markets were closed amid the lockdown of pandemic, including Guangzhou Zhongda Market, Hubei Cangzhou Market and markets in Wuhan, Hubei and Zhuzhou, Hunan etc., which greatly affected the business of apparels and fabrics. Many new orders were suspended. 

Thirdly, Dec and Jan are time for the placement of export orders and domestic orders for spring products in the coming new year. Part of these orders will be finished before the Spring Festival holiday and the rest will be done after holiday, which will support the operating rate of downstream plants before the Spring Festival holiday to a certain extent. However, the situation is different this year. Firstly, the placement of orders for next season鈥檚 spring fabrics is estimated to keep cautious. It is because players worry the selling cycle of spring apparels may be shorter affected by the spread of pandemic. After all, sales of spring apparels is meant to be short. Secondly, overseas apparel and fabric wholesalers are facing big inventory burden and may be forced to reduce forward cargos and retard picking-up. Export orders is still expected to be bleak before and after the Spring Festival holiday. Export of textiles and apparels declined by 13.5% on the year in Oct in China, with bigger reduction compared with Sep. The inventory of overseas brands sustained high. Export of textiles and apparels may be still pressed for at least one or two quarters. Some fabric mills or foreign trade companies received some export orders, but the volume was lower than the past years and the price was low. 

Downstream business is poor, leading to the decling operating rate of downstream plants, with the operating rate of fabric mills continuing to fall to 46% this week. But even so, stocks of grey fabric still has accumulated, indicating that the degree of decline in business is still higher than the downstream shutdown speed. Downstream business may be hard to improve in short run when the spread of pandemic is very serious in some regions of China. The lockdown in Guangzhou Zhongda Market may be hard to be canceled in short run. Therefore, some merchants were forced to move warehouse to Foshan, Guangdong not greatly affected by the pandemic. Domestic business is hard to rise and export orders are expected to reduce on the year. 

It is expected that PFY plants may continue cutting more production after downstream plants鈥 operating rate fell further. Some fabric mills have planned to start holiday in end-Nov/early-Dec, while most will keep running until mid-Dec. Most downstream plants may shut down for Spring Festival holiday by late-Dec, around 15-30 days earlier than the past years. At the same time, leading polyester enterprises also have plans to reduce PFY operating rate to a historically low level of 40-50%.

[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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