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Insight | Time: May 19 2020 4:54PM
With accelerating textile industrial transfer, downstream market losing market share
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For China's textile and apparel industry, exports have always been a very important demand market, and the scale of the foreign trade market, as well as changes in structure, have also received much attention.

The export data, because the units of each category are different, they are often calculated by the value, but because the unit price of each category is obviously different, it can not fully correspond to the relationship between the quantities; In addition, it also involves exchange rate issues, and the results obtained also vary greatly calculated under US dollars and RMB basis.

However, in order to actually feed back to the demand, a quantitative assessment is still required. In order to simplify the calculation, the following is temporarily calculated according to the below relationship: 1 piece (set) of apparel is converted into 2 meters of fabric, and the weight of 1 meter of fabric is 150 grams. The actual results are still different, but the magnitude and trend can be viewed roughly.

According to the statistics, the export volume of major chemical fiber products (converted to 10,000 tons) is obtained, and the corresponding categories are: chemical fiber yarn, chemical fiber woven fabric, chemical fiber woven apparel, chemical fiber knitted apparel.
(Note: Only a few important categories are selected here.)

Although the absolute value does not rule out deviations due to the problem of unit conversion, it can be clearly seen from the comparison of like products that the export of yarn is growing fastest and the export of fabric is also growing steadily, but the increment of apparel is extremely limited.

The textile industry in Southeast Asian countries is developing, and the supporting system is not perfect. For example, the Cambodian apparel industry is worth US$ 7 billion, of which 60% of the raw materials depend on China, mainly textile fabrics.

As a result, apparel exports have been stagnant, and the rapid growth of yarn and fabric export may not necessarily reflect the increase in end-user demand, but may only be the transfer of division of labor. Southeast Asian countries have obviously eroded China's market share, which partially reflected in yarn and fabric export in China. 

In the same way, the export volume of the main cotton varieties (converted to 10,000 tons) is obtained, and the corresponding categories are: cotton yarn, cotton fabric, cotton woven fabric and cotton knitted clothing.

The situation of cotton products is even less optimistic, and the export of yarn and fabric is not as good as apparel, not competitive in the international market.

Of course, the above are simplified treatment and analysis. In fact, whether it is fabric or apparel, it may actually be made of a variety of raw materials, but it is simply classified according to the main ingredients, but the conclusion is basically not affected.

The continued growth of chemical fiber exports reflects China's competitiveness in chemical fiber yarns and fabrics, but emerging textile countries are also gradually developing their own capacity. How long this advantage can be maintained requires careful consideration.

The yarn and fabric sectors which are seemed to be superior are actually not of high added value. Taking polyester filament yarn as an example, industrial yarn producers pay much attention to overseas market, but the textile filament factories still present limited concern on exports. On the one hand, the export ratio of textile filament is less than 10%, and on the other hand, the export efficiency is not as good as domestic sales. In terms of fabric market, there are differences between grey fabric and finished products, and fabrics with different processes also differ, which cannot be generalized. However, the benefits of conventional products exported may not be better than those of domestic sales, but the order cycle will be relatively more stable.

The most terminal part of the textile industry is apparel, and the apparel part is the most inactive sector of the industrial chain in recent years. Even during the industry recovery beginning at the end of 2016, it was also the calmest. Regarding the reasons, there are various views, such as the problems of the apparel industry model, including the decline of apparel stores, the trend of customization, high turnover, and the impact of online sales, as well as the changes in residents' consumption habits and consumption structure etc. Seen from the export alone, apparel companies that lack brand competitiveness and product added value are losing market share.

As for the industrial transfer, it has actually been discussed for many years, but from the data of recent years, this process has been actually reflected, especially in the context of the trade war, which may accelerate. The COVID-19 outbreak has hindered the export of textile-related industries in China, so companies are more concerned about the resumption of work in overseas markets such as Europe and the United States, waiting for the recovery of demand and the improvement of orders. Although the pandemic is still not controlled well in Southeast Asia, the companies there have made great effort to resume work as quickly as possible to avoid market share being seized.

In fact, industrial transfer is originally a trend of historical development. China's polyester and upstream industries were also transferred from Japan and South Korea, and Japan and South Korea were also derived from Europe and the United States. But the problem is that at the beginning of the self-sufficiency of China's polyester industry, raw materials needed to rely heavily on imports. At that time, the raw materials was very lucrative. In the 1980s and 1990s, the PET fiber chip was extremely profitable; Polyester industry has been developing, and PTA and PX once highly relied on import. All these products experienced a huge profitable period and started stepping into stable era after domestic capacity substantially expanded. 

[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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