China textile supply chain hurts bad as demand slumps amid global recession

Author: Pearl Bantillo

2020/04/09

SINGAPORE (ICIS)--China’s entire textile supply chain is facing rougher times ahead as export orders get cancelled and recovery prospects still far off and the world wallows in pandemic-induced recession.

“The textiles industry has … taken an absolute hammering,” ICIS senior Asia analyst John Richardson said, and China will feel the brunt of the sharp decline in external demand as the country accounts for a third of global textiles exports.

“China is at the very heart of the global polyester chain. It is the world’s biggest importer of PX [paraxylene] and ethylene glycols, the world’s biggest producer of PTA [purified terephthalic acid] and is always a net exporter of polyester fibres,” he said.

Chinese polyester producers recently reported higher sales and falling inventories but these may be short-lived due to expected weakness in exports.

Export orders from India and southeast Asia have recently been postponed as their downstream textile converters have shut production amid lockdowns. The same is true for the rest of the world.

“As so many people are in lockdown, they are not buying clothes. The crucial back to school season in the West in September won’t happen this year,” Richardson said.

“The whole value chain has come to a horrible halt … because the Western retailers have cancelled orders,” he added.

About 20-30% of China’s clothing and textile produce gets exported, ICIS analyst Jimmy Zhang said, adding that inventory levels, which typically decline in April, are still climbing because of poor demand.

“High inventory levels in cloth, polyester fibre have hampered stocking demand for petrochemical raw materials like PTA [purified terepthalic acid]. Thus, operating rate of PTA is hard to rise in the next several months,” he said.

China plants average utilisation in 2020

Week ending PTA run rate Polyester run rate
3-Jan
84% 81%
10-Jan 83% 79%
17-Jan 85% 74%
23-Jan 89% 72%
2-Jul 88% 60%
14-Feb 80% 59%
21-Feb 76% 60%
28-Feb 75% 61%
6-Mar 81% 67%
13-Mar 81% 70%
20-Mar 69% 77%
27-Mar 71% 76%
3-Apr 82% 76%

The inventories have been high for the seventh straight year, with revenues of local textile and apparel producers in the red in 2018-2019, partly due to changing spending habits, ICIS analyst Rachel Qian said.

More than 90% of MEG in China goes into polyester production.

As polyester demand is unlikely to post growth this year, MEG demand growth is projected to slow down to 0.6% from 5.0% in 2019, and will likely be accompanied by a 33% average decline in spot values, Qian said.

Outside China, textile and yarn industries are also slumping as export orders from Europe and the US have sharply declined.

In India, the polyester markets had grinded to a halt amid the country’s 21-day lockdown.

To prevent a build-up of inventories, PTA producers have taken to shutting down their facilities at this time.

Among these producers are Taiwan’s Formosa Chemicals & Fibres Corp (FCFC), which will shut its Mailiao plant in May; and Oriental Petrochemical (OPTC), which will take its No 2 unit off line in the second half of April.

Demand will continue to deteriorate as the novel coronavirus crisis, which started in China, continues to wreak havoc on the world economy.

Based on latest forecast from the Economist Intelligence Unit (EIU), the US economy could contract at a much sharper rate of 12.35% from the first quarter.

The US, which is the world’s biggest economy, has the highest number of coronavirus infections in the world at more than 360,000 as of 8 April.

The global tally of confirmed cases stood at above 1.3m, with the death toll at nearly 80,000, according to the World Health Organisation (WHO).

The novel coronavirus first emerged in China’s central city of Wuhan late last year and has spread across more than 200 countries/territories/areas by now.

Focus article by Pearl Bantillo

Additional reporting by Judith Wang, Winnie Huang and Samuel Wong

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