Last week, the price of polyester yarn continued to rise. This week, I thought the increase would ease a little. As a result, oil-producing countries collectively reduced production, and crude oil surged by 6% in a single day. Eventually, the cumulative price of polyester yarn rose by more than 500 yuan/ton in 10 days.
The increase in the price of raw materials is relatively common for textile companies. In the past, when the price increases were severe, it was not unheard of for raw materials to rise by three to four hundred a day. But at this point in time, raw material prices continue to rise, which is still a bit embarrassing for the market.
Compressed profits
According to statistics from the China Filament Weaving Association, as of the end of 2022, the scale of looms in my country’s filament weaving industry reached 836,000 units, including 770,000 water-jet looms, a year-on-year increase of 5.48%. In 2022, my country’s total output of chemical fiber filament fabrics will reach 59.5 billion meters, a year-on-year increase of 6.82%.
The production capacity of gray fabrics is increasing all the time, but due to the international economic environment, demand has stagnated. Even if domestic demand is growing, foreign trade has been somewhat sluggish due to factors such as the Federal Reserve’s interest rate hikes and inflation.
When supply exceeds demand, the market becomes convoluted and profits are inevitably reduced to extremely low levels.
“The price of the fabric we make now is very cheap. We focus on cost-effectiveness and rely entirely on quantity. But fortunately, the quantity is relatively large and the machines are relatively few, so the business operation is relatively smooth.” A textile manufacturer that produces imitation memory Mr. Shen, the person in charge of the company, said.
For some functional products, many customers either lower the price or look for cheaper alternatives, even if the performance is slightly worse; for some conventional products, most customers have already met their requirements for cost-effectiveness. To the extreme, sometimes when some textile companies make fabrics, the gray fabrics purchased from outside are even cheaper than those made in their own factories.
Change of quotation
When profits were very low, many companies relied on sales. Although they could not make much money, they could still get by. However, as the price of raw materials increased, many things changed.
First of all, rising raw material prices will inevitably lead to “flour being more expensive than bread” for some fabrics. In order to ship goods, some textile companies have chosen to “eat” the price increases.
Mr. Tong, who mainly sells imitation silk, said: “The market competition for our products is relatively fierce, and it is difficult to sell the goods themselves. No one will raise the price. If we increase the price, we will not be able to sell the goods. In order to ship, we You can only digest this increase by yourself.”
However, short-term losses may be acceptable to textile companies, but long-term systemic losses represent chronic death, and the prices of some gray fabrics have already increased.
Trader Ms. Liu said: “Now when we go to get gray fabrics, those that are in stock can basically be bought at the original price, but if there is no inventory and we need to make them now, the price may go up.”
The game between price increase and production reduction
Whether the price increases or not depends mainly on the acceptance of the downstream. If the downstream can accept it, it will be good for you and me. But when the downstream cannot accept it, difficult choices need to be made.
Some textile companies choose to continue full production and inventory. Of course, there are some risks in doing so. Although the inventory of gray fabrics on hand by weaving companies is not particularly high at this stage, there is not a lot of cloth in the hands of traders. Generally speaking, the stock of gray fabrics on the market is very high now. If we continue to make inventory at this time, we may hold it in our hands for a long time, and we will have to consider funds a lot.
Another method is to reduce the start of production and see if the raw materials in the warehouse can be used for a few more days. Maybe the price of raw materials will drop after a few days. It happens to be the Tomb Sweeping Day holiday, which gives textile companies a reason to take a holiday.
“We have a one-day holiday during the Tomb-Sweeping Day. I heard that some companies have a three-day holiday during the Tomb-Sweeping Day. The price of raw materials is too expensive now. We judge that the price of raw materials is now at its peak, and we want to wait until the peak is over before buying raw materials.” said Mr. Zhang, the person in charge of a weaving company that produces pongee.
We can also see from the production and sales of polyester that in this round of polyester price increases that lasted for nearly two weeks, there was only one day when the average production and sales of polyester exceeded 100, which was also stimulated by the surge in crude oil.
At this stage, the game between weaving and polyester has become intense. On one side, prices are rising, but on the other, they are “flat”. This kind of game will continue for some time in the future.
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