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Filature factories in dilemma as silk prices lower than cocoon
Aug '11
Chinese filature factories are witnessing a strange phenomenon wherein the cost of cocoon needed for producing one ton of raw silk is more than the price at which one ton of raw silk is being sold in the market.

The price of cocoons soared to touch a new high of 430,000 Yuan/ton earlier this year, but the market crashed after July and the prices fell to about 330,000 Yuan/ton.

It is estimated that for production of a kg of raw silk, 8 kg of fresh cocoon is needed. If calculated on the basis of current cocoon price of 50 Yuan/kg, the cost of raw material for producing one ton of raw silk will work out to about 400,000 Yuan. When other manufacturing cost of another 60,000 Yuan is added, the total cost of production for one ton of raw silk would be 460,000 Yuan. Against this, the current market price for one ton of raw silk is hovering around 350,000 Yuan. Thus, there is a loss of over 100,000 Yuan on production of one ton of raw silk.

The filature factories are in a dilemma due to the current situation of higher cocoon price and lower silk price. As companies do not want to sell their silk produce at the current lower price, the stocks of silk are getting piled up in warehouses, and it is affecting their liquidity.

Companies that have huge inventory are facing pressure due to this situation and are suffering heavy losses by selling at lower price. While some smaller factories have resorted to halt production, a few of them are on the verge of collapse.

Fibre2fashion News Desk - China

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