Cotton prices continue to hang upside down, and the transformation of textile companies

Domestic and foreign cotton prices face multiple challenges. The domestic cotton spinning enterprises are experiencing a worrisome situation – upside down, insufficient quotas for imported cotton, and rising labor costs...

In view of the use of imported cotton in Chongqing, the Chongqing Entry-Exit Inspection and Quarantine Bureau conducted a special survey recently and called attention to the plight of cotton textile companies. It is recommended that relevant departments assist the enterprises to strive for import quotas and reduce production costs.

The constraints of raw materials have already begun to force the transformation and upgrading of many cotton spinning enterprises such as Chongqing Three Gorges Technical Textile Co., Ltd.

Cotton prices hang upside down industry

In the industrial landscape of Chongqing, integrated textile is one of the pillar industries. Like many domestic counterparts, the inversion of domestic and foreign cotton prices that began in the second half of 2011 has caused many Chongqing companies to suffer from brain damage.

The Chongqing Entry-Exit Inspection and Quarantine Bureau found that the amount of cotton used by Chongqing textile companies has increased significantly in recent years. Due to China's cotton purchasing and storage policy, cotton prices have not been brought into line with the market, and international cotton prices have continued to decline in recent years, showing a trend of increasing inside and outside the country. According to the survey, in February 2014, the average price of imported cotton to shore was around 15,000 yuan/ton, while the domestic price of similar products reached 19,800 yuan/ton, and the price difference per ton reached 4,800 yuan. In 2013, the difference was even above 6,000 yuan. Due to the lack of import quotas, enterprises can only purchase domestic cotton to meet production demand, and production costs remain high.

“Cotton costs account for about 70% of the total cost of textile companies. Because the country implements quota management on imported cotton, it is very difficult for cotton spinning companies to get quotas for imported cotton. The high domestic cotton price leads to high raw material costs and engulfs profits. "Fang Zhuliang, head of Chongqing Three Gorges Technical Textiles Co., Ltd., said that the company processes about 40,000 tons of cotton annually and is the largest cotton import company in Chongqing. In 2012, the Three Gorges Textile Co., Ltd. obtained a quota of 18,000 tons of imported cotton. In 2013, it received only 12,300 tons, a decrease of nearly one-third.

Textile companies are losing money

Affected by the cost, coupled with weak market consumption in the past two years, some textile companies are already at the edge of losses.

Shapingba Huilongba Town is known as the "professional textile town" in our city. Yesterday, Xu Xingquan, director of the Economic Development Office of Huilongba Town Government, said that at present, there are about 400 textile enterprises in the town. Due to weak market consumption, high inventory levels and rising costs, about 20% of companies suffered from a decline in profits last year.

Tang Yuanchuan, head of Yangzijiang Textile Co., Ltd., also stated that, apart from rising cotton prices and other costs, exports are not very satisfactory. Most textile companies face profitability problems.

Fan Zhuliang revealed that due to the increase in cotton spreads at home and abroad and the increase in labor costs, the comprehensive cost of the textile industry in the Three Gorges increased by at least 10% year-on-year, and the difficulty in operating increased significantly. What worries them even more is that the company will also invest 15 billion yuan to build the “western textile city” and build the country’s largest and most technologically advanced compact spinning production and research and development base. After the completion, the annual cotton imports will reach 40,000 tons. If the phenomenon of inverted cotton prices at home and abroad cannot be resolved, the development of enterprises will be greatly affected.

According to data from China Business Intelligence Network, from 2011 to 2013, the number of loss-making enterprises in China's textile and garment manufacturing industry has gradually increased, with 1033, 1,741, and 1,818 companies respectively.

A review of the performance of several major textile companies in 2013 found that Huafang Textile (600273, shares), Taiya (002517, shares), and Demian (002072, stocks) were all losing money. Among them, Huafang Textile's net profit loss was 32.51 million. “In 2013, the textile industry continued its downward trend in the past three years. Because the domestic cotton price is much higher than the international market, various costs are rising, and the international market is not stable, textile companies are not much better.” Huafang Group official said .

Inverted the transformation of the industrial chain

The test of the cost link has already begun to force the transformation of the textile industry.

Xu Xingquan, director of the Economic Development Office of the Huilongba town government, said that at present some enterprises in Huilongba town have improved or introduced advanced equipment to improve production efficiency. As last year, a company purchased 96 domestic advanced air-jet looms. Some companies also seek out a way out through product innovation and begin to devote their efforts to high-end fabrics and other specialized products.

“In addition, the town government is also actively helping companies to further solve the financing problem.” Xu Xingquan said that last year, through the introduction of a number of banks to cooperate, it will finance 350 million yuan for local companies. At the same time, the government also guides the transformation of the company's management style and business philosophy.

Fan Liangliang, head of Chongqing Three Gorges Technical Textiles Co., Ltd., said yesterday that the difference in cotton prices at home and abroad has increased the cost of cotton companies, making cotton enterprises have to be transformed and upgraded to produce high value-added products. Taking this company as an example, it has been decided to reduce the amount of cotton used to produce blended products. It is expected that the new products will be in the next phase of the moon.

Depth

Cotton Direct Subsidy Policy

Pilot or turning point

However, the problem of inverted cotton prices encountered by textile companies may usher in a turning point this year.

It is understood that the National Development and Reform Commission has identified Xinjiang as a pilot area for the direct subsidies of cotton farmers, and plans to change the previously administratively-reserved cotton temporary storage and storage policy into a direct complement policy for farmers that has strengthened the market role.

Yesterday, Sun Liwu, an analyst at Zhuo Chuang, said that after the implementation of the Cotton Direct Subsidy Policy, it means that the domestic cotton price will also be linked to the market, and will be priced according to the supply and demand situation. The domestic and international cotton prices will converge.

Sun Liwu introduced that at the beginning of the implementation of the cotton purchase and storage policy, it did play a positive role in supporting the city. However, with the changes in the environment at home and abroad, the implementation of the three-year temporary purchase and storage policy has been unable to meet the development needs of the cotton market, and in this process Among them, cotton farmers do not benefit much, but through direct subsidies, the enthusiasm of cotton farmers will increase. On the other hand, at present, domestic cotton reserves are about 13 million tons, and the amount is relatively large. From a comprehensive analysis, the domestic cotton price will show a downward trend, which will benefit textile and garment companies.

Suggest

Increase policy support

According to the Chongqing Entry-Exit Inspection and Quarantine Bureau’s survey, in terms of quality, in 2013, the Chongqing Port had imported and tested 8,770 tons of imported cotton with a value of US$1,688,000, of which the unqualified batch rate was 83.33%. Claims $399,900. At the same time, the problem of short and heavy weight was prominent, and 100% of the arrival batches were short-lived. The average short-weight ratio was 1.48%.

According to regulations, imported cotton must not be put into use without inspection. However, since Chongqing and even the Southwest have no national designated import cotton testing laboratories, the samples collected after on-site inspections must be sent to Hubei, Shaanxi, and other places for quality inspection. Enterprises must make external claims based on the quality and weight claim certificates issued by inspection and quarantine agencies. The import claim for cotton is valid only for 90 days from the entry calculation. After deducting the procedures for customs clearance, transfer to the inland waterway, and sample inspection, the time for the company to claim foreign claims is short, which seriously affects the company's production schedule.

The Bureau recommends that we continue to increase policy support for cotton spinning enterprises and assist enterprises in obtaining more import quotas. At the same time, we must provide greater support and preferential treatment for enterprises in terms of preferential taxation, export tax rebates, export of products, etc.; and establish the import of Chongqing as soon as possible. The cotton testing laboratory effectively solves the problem of excessively long inspection cycle of imported cotton, avoids accidental compensation, and safeguards the legitimate rights and interests of cotton-using enterprises.