After the holiday, raw materials rose sharply, and downstream textile companies raised prices

After the Spring Festival this year, the “good start” seems to be a bit earlier than usual. Taking the textile industry as an example, benefiting from the rising prices of crude oil, PX (para-xylene), PTA (refined terephthalic acid) and other bulk raw materials, the price of chemical fiber raw materials ushered in a substantial general rise, and it quickly spread to the entire industry. Trigger price adjustment across the board.

The relevant person in charge of the chemical fiber sales department of Hengli Group, a leading Chinese textile manufacturing company, told China Business News that after the Spring Festival, the groups main products for civil silk rose by 1,000 to 1,500 yuan per ton, and industrial silk products rose by about 1,000 yuan per ton. Both are around 15%, which is the largest increase in recent years.

As in previous years, the machines in the Hengli factory did not stop rotating during this Spring Festival holiday. Under the in-situ Chinese New Year initiative, 90% of the employees left by the company for the New Year this year have also led to a concentrated outbreak of corporate orders around the Spring Festival. The person in charge said that the company’s orders have been scheduled to March to April, and they need to work overtime to complete them.

For groups with a long industrial chain and relatively concentrated upstream companies, it is relatively easy to increase prices. But when it is transmitted to the dispersed downstream, the price increase becomes a bit embarrassing.

“The grey fabrics we produce can only increase symbolically, and customers are reluctant to accept price increases.” As a downstream enterprise of Hengli, Li Changchun, manager of Suzhou Wujiang Weihua Textile Co., Ltd., which produces fabrics, told reporters. The price of products is definitely not as big as the increase of raw materials. According to different varieties, their company’s highest increase is not more than 15%.

Shen Jian, deputy general manager of the silk chemical fiber index monitoring and release platform of the Shengze Silk Chemical Fiber Index in Wujiang, Suzhou, said that with the general rise of raw materials after the holiday, the fabric companies in the market have also raised prices one after another, and even exceeded Hundreds of textile companies have raised prices in a group, but the increase is not large in general. In addition, compared with the base number of tens of thousands of downstream enterprises, even if the prices of a hundred companies raise prices, it is difficult to compare with the collective price increases of upstream.

A sentence from Meng Zhuo, manager of Anhui Garment Import and Export Co., Ltd., revealed the helplessness of the downstream: “The increase in raw materials is obvious, but in reality, 90% of customers are asking for lower prices.”

Under the global epidemic, foreign trade orders have seen a general rise from the second half of 2020. The sharp rise in raw materials after the holiday may squeeze the meager profits of some  textile companies.

The price of a received order cannot be adjusted and can only be internally digested.Fang Yuxing, chairman of Tingmei Chuangzhi (Zhejiang) Apparel Co., Ltd., told China Business News that the fabric they purchased after the holiday increased by about 5%. However, according to his experience, there will be a rising period when starting work after the holiday every year, and it is estimated that it will fall back in mid-March.

In Shen Jian’s view, the impact of rising raw materials on corporate profits is dynamic. Since most companies will stock up before the Chinese New Year, this wave of price increases after the holiday has given fabric companies a reason to adjust prices appropriately, which is conducive to destocking to a certain extent.

According to the data monitored by China, weaving stocks in Jiangsu and Zhejiang are maintained at about 41 days. The price increase may make short-term supply tighter. “When the price of raw materials rises, companies will be more motivated to stock up, and the more they rise, the more they can get.” As far as the market is concerned, according to Shen Jian’s preliminary investigation, the order situation of fabric companies this year will be better than last year. Companies started to take orders before the Spring Festival holiday.”

However, the uncertainty brought about by the epidemic has increased the frequency of customer orders and decreased the scale.

Whether the price increase of raw materials will continue has become a topic of greater concern to the industry. The relevant person in charge of the chemical fiber sales department of Hengli Group believes that the rise in raw materials after the holiday is mainly due to three reasons: the first is the cost-side support, and the global currency looseness has led to the increase in bulk raw material prices; the second is the optimism on the demand side. The domestic epidemic situation is well controlled. With the gradual control of the epidemic situation and the promotion of vaccines abroad, everyone is increasingly optimistic about the overall economic recovery; the third is the local Chinese New Year policy, which has prompted downstream textile factories to resume work and production faster than in previous years .

As people’s expectations for the global economic recovery increase, international oil price demand is expected to continue to heat up; superimposed on the shale oil production in Texas, a major oil-producing region in the United States, suffered severely due to severe cold weather, which suppressed the supply of crude oil market, and WTI crude oil futures prices broke through USD 60/barrel. Goldman Sachs predicts that Brent crude oil prices will reach $65 per barrel in mid-2021.

Not only did oil prices continue to rise, but affected by the economic recovery and monetary easing policies of major economies around the world, during the Spring Festival, overseas commodity markets were booming, and international copper prices and other commodities also hit new highs continuously.

There is support on the cost side, and the demand side is also recovering. Hang Seng Bank chief economist Wang Dan proposed that as the global epidemic is brought under control and transportation gradually resumes, the prices of bulk commodities will stabilize.

Post time: Feb-26-2021