FocusShake-up for China textiles as exports dip

23 April 2008 04:44  [Source: ICIS news]

By Hong Chou Hui

SINGAPORE (ICIS news)--Poor export numbers for China’s textile and garment makers - evident from the recent Canton Trade Fair – may lead to a shake up for the key industry, producers and traders said on Wednesday.

The China Import and Export Fair, which is also known as the Canton Trade Fair, is a barometer of export orders from the country in the coming months and the 103rd edition of the event took place from 15 through 20 April.

Overseas orders for Chinese textiles and garments were down by 24.4% at the twice-a-year event held in the southern province of Guangzhou, according to data from the website of China’s Ministry of Commerce.

The previous edition of the Canton Trade Fair in October chalked up $3.02bn (€1.9bn) worth of overseas sales.

“There’s a glut of polyester fibres and yarns in China right now,” a source from Huvis, a Korean maker of polyester fibres based in eastern China, said in Mandarin.

“Everyone was looking forward to the export orders from the Canton Trade Fair to provide an outlet for their wares but it looks like things are about to get worse,” he added.

The larger-than-expected slide in export orders is viewed as a sign of tough times ahead for the world’s biggest textiles and garment exporter, as the supply overhang expected to remain.

“The domestic market can only absorb so much of the cargoes available and even then, how much can the Chinese people wear and afford to buy?” the source said.

“Local consumption in China alone cannot sustain the output because the entire polyester industry and its downstream textiles and garments sectors have always been geared toward exporting for margins,” he said.

Rising labour costs and the weakening US dollar against the Chinese yuan have also squeezed margins for export-oriented polyester fabric makers.

“A lot of the smaller players are barely breaking even and do not even have the option of exporting their wares due to the yuan reaching a new high against the dollar in recent weeks,” a Taiwanese trader of polyester fibre chips said in Mandarin.

New labour laws in China -which make benefits such as healthcare, better working conditions and improved remuneration compulsory - went into effect from 1 January, resulting higher labour costs for Chinese polyester and textile players.

Industry sources said that it could cost as much as an additional CNY500 every month to hire a cleaning lady, with skilled workers in the polyester and textile factories bound to demand more in wake of their empowerment by the country’s new labour laws.

The US has been a major foreign market for textiles, garments and consumer goods made in China with orders falling recently on the back of an ailing US economy.

The head of the US Federal Reserve, which regulates the nation’s economy, Chairman Ben Bernanke has said that the country could already be in a recession.

Coupled with the US sub-prime credit crisis which began in the last quarter of 2007 and the loss of 80,000 jobs in March, this could have a negative impact on demand from China’s key export market, industry sources said.

Some industry sources felt that there was a silver lining in the impending dark clouds ahead for China’s polyester and textile sectors.

“China’s government has been trying to move away from these low-value manufacturing industries to upstream sectors which have higher-value and can bring in better returns,” an executive from Far Eastern Textile’s Shanghai office, said in Mandarin.

“Better to take the bitter medicine now than to have it forced upon the Chinese economy later especially after the euphoria of the Beijing Olympics in August,” he added.

Far Eastern Textile is Taiwan’s largest polyethylene terephthalate (PET) bottle chip producer with facilities in Shanghai and Suzhou in eastern China.

The executive added that China’s inability to compete in terms of labour costs with emerging economies such as Vietnam, Bangladesh and Indonesia had resulted in a rash of polyester and textile factories moving to south and southeast Asian nations over the past year.

In the face of falling demand, raw materials such as polyester staple fibre (PSF) 1.4 denier softened by yuan (CNY) 100-150/tonne to CNY11,200-11,300/tonne ex-works for the week to 22 April on the back of sellers lowering offers, based on global chemical markets intelligence service ICIS pricing.

This has been one of the largest falls in yarns and fibres prices recorded. 

Chinese downstream garment and textiles sector recorded fabric transaction volumes of 6.23m metres at the benchmark China Textile City in Shaoxing on Tuesday, which is considerably lower than trade levels of 8-10m metres of previous years.

Polyester fibres are used as filling for comforters and winter jackets while polyester yarns are utilised to make clothes.

Major producers of polyester fibres and yarns include Thailand’s Indorama, India’s Reliance Industries Limited and China’s Sinopec Yizheng Chemical Fibre Co.

($1 = €0.63)

Zhou Ying Ting from CBI China contributed to this article.

By: Hong Chou Hui
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