Cotton Prices Rise And Fall, Downstream Enterprises Cut Production By 60% To 70%

"It's very painful."

This is the first sentence made by a Wuhan cotton chief in a meeting with reporters.

Why did Zeng Zhong say so? Where is the pain?

Cotton prices have been erratic since last year.

In May last year, cotton prices were 17000 yuan / ton, six months later, cotton prices soared, and the price per ton exceeded 30 thousand yuan. In February this year, cotton prices hit a record of 35000 yuan / ton.

Since April, domestic cotton prices have dropped rapidly on average at 500 yuan per ton per 3 days.

In two months, cotton prices fell back to 22000 yuan / ton, or nearly 30%.

More than half of the downstream production of textile enterprises cut down

The downstream users of weaving mills, printing and dyeing factories and some small garment enterprises have 60%-70% shutdown, and the output of textile enterprises is directly compressed by 40%-60%.

"If we save 3000 tons of cotton, we will lose 30 million yuan and a ton will lose ten thousand."

Zeng Zhong said that when cotton prices rose, many enterprises hoarded large quantities of cotton at high prices, and some large enterprises hoarded goods up to 10000 tons, which means that they would directly lose hundreds of millions of yuan.

According to the briefing, one cotton organizing staff recently went to Jiangsu and Zhejiang to do market research and found that downstream users such as weaving factories, printing and dyeing factories and some small garment enterprises had 60%-70% shutdowns, and the output of textile enterprises directly reduced 40%-60%.

In order to avoid risks, a cotton production will be compressed by 1/3. In the past, 3000 tons will be stored every month, and two months after digestion.

"The whole industry is very difficult, more serious than the financial crisis in 2008."

Zeng Zhong said that cotton prices rose sharply last year, and downstream customers scrambled for goods.

Since April, when cotton prices began to fall, many textile enterprises took a wait-and-see attitude and could only buy a little bit.

He also pointed out that with the continuous increase of water, electricity, gas, oil and labor costs, enterprises are facing the pressure of sharp increase in production costs. In addition, the state has tightened money, and many small and medium-sized enterprises lack liquidity, making it even more difficult to survive.

In addition, let Zhong Zhong worry that falling cotton prices will dampen farmers' enthusiasm and thus reduce cotton production. Textile enterprises can only choose to import cotton. The cost of purchasing cotton accounts for about 70% of the total cost of the enterprise. The use of imported cotton will greatly increase the cost of enterprises. At that time, the survival of textile enterprises will be even more difficult.

How much loss do we have? How much is spinning?

Most enterprises purchase cotton lint purchase price at more than 28 thousand per ton, while the current market has dropped to 23 thousand.

Wuhan Lin Sheng Textile chief Li Shilin was very depressed recently. When cotton prices rose last year, he ate hundreds of tons of cotton at a price of up to 30 thousand yuan per ton. Now cotton price has dropped 30%, he has lost about one million.

Li Shilin said that the price of cotton is going down all the way, and the stock of the enterprise is destined to be sold at a loss.

But what worries him is that so much inventory is also a big problem.

According to the insiders, the purchase price of most enterprises' cotton lint is at more than 28 thousand yuan per ton, while the current market has dropped to 23 thousand.

"At present, digestion inventory is the way for all enterprises to avoid risks."

Zeng Zhong said that most textile mills had high inventories, and some stocks were as high as one and a half months. "High inventory has become a magic curse that is hard to get rid of." last year, customers came to buy cotton and cotton yarn, even though the price doubled.

Now, spinning enterprises are hard to sell.

"This year's domestic textile enterprises have not been better, and the number of large enterprises in Shandong and Jiangsu is losing hundreds of millions of dollars this year."

China's cotton industry inventory survey recently showed that yarn inventory increased by 13.1 days in April, the highest level since March 2009, and the inventory of inventory increased by 8.8 days, becoming the highest level since March 2010.

Textile enterprises encounter export orders shortage

From the industry as a whole, the export orders for textiles have decreased by 1/3, and Lin Sheng's textile exports earn 15 million yuan, and there are no export orders at present.

Cotton is the raw material of textile enterprises. Is it not a good thing that the price of raw materials has fallen? Why will it cause a major loss for the enterprises?

"This is a misunderstanding," the industry said, from cotton farmers, traders, cotton spinning enterprises to clothing terminal enterprises, the textile industry is a "middle" industry, is the biggest loss.

Downstream customers are buying up or not buying, cotton is going up badly, orders are getting more, on the contrary, customers' orders will be reduced.

The textile industry also has the mentality of "buying up or not buying", which aggravates the wait-and-see sentiment of the downstream enterprises, so that the whole production chain has entered a vicious circle of "falling price".

"Affected by the slow recovery in European and American markets, reduced procurement, coupled with the appreciation of the renminbi and the rapid increase in raw material and labor costs, domestic cotton textile export advantages are not in place, and the order volume of textile enterprises is decreasing."

Zeng Zhong pointed out that China's textile industry still belongs to the export oriented industry, but the domestic textile enterprises are producing at a higher cost than the international 10%-20%, which makes China's textile industry face great challenges.

Zeng Zhong said that he was worried that the competitiveness of domestic textile products was greatly weakened due to high cotton prices in the early days.

"There is no order now."

Li Shilin said that from the industry as a whole, the export orders for textiles have been reduced by 1/3, and Lin Sheng's textile exports earn 15 million yuan, and there are no export orders at present.

"For our small businesses, this is an unbearable blow."

"Before our order could be placed in 2 months, it would be only half a month later.

The decline in cotton prices has led many customers to wait and see carefully.

Another textile enterprise leader said that textile enterprises usually have inventory of two to three months or so.

"Three months ago, the company acquired cotton at a contract price of 30 thousand yuan / ton. Now, when contracted with customers at current prices, they lose five thousand or six thousand yuan per ton. According to the usage of 350 tons of cotton per month, they can reach 1000 tons in three months and lose millions of dollars."

Tax rebate reduction or "fatal blow" to SMEs

Floating up and down one percentage point is related to the profit of about 5 billion 200 million yuan in the textile industry.

Because textile enterprises have been in a small profit for a long time, even a percentage point reduction means that a large number of small and medium-sized enterprises will slide under the line of life and death.

When many textile enterprises were forced to limit production and reduce production, rumors about "textile industry lowered the export tax rebate rate by five percentage points" made many textile enterprises "shudder".

"This is a fatal blow for small and medium-sized enterprises."

Zeng Zhong is quite worried that the fluctuation of cotton prices will be doubled. If the export tax rebate rate is further lowered, the prospects for textile enterprises will be worrying. "Let alone five points, even one or two points can not be adjusted."

Another textile enterprise leader believes that the steady rise of the RMB exchange rate has led to an annual reduction of about 0.5% of the profits of the enterprises. The rising prices of raw materials and the rise in labor prices also directly compress profits. Once the tax rebate rate is lowered, it will basically be "zero profit".

Sun Huaibin, director of the China Textile Economic Research Center, analyzed the reason why textile enterprises were so sensitive to the adjustment of export tax rebates, mainly because the textile enterprises were mostly small and medium-sized enterprises, and could not afford the blow of the loss of profits.

According to the introduction, the total export volume of textiles in China amounted to US $77 billion 51 million in 2010, and the export tax rebate was about 78 billion 500 million yuan.

Floating up and down one percentage point is related to the profit of about 5 billion 200 million yuan in the textile industry.

Because textile enterprises have been in a small profit for a long time, even a percentage point reduction means that a large number of small and medium-sized enterprises will slide under the line of life and death.