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Textile sector troubled by cotton price volatility
08
Jun '11
Volatility in cotton prices is adding to the difficulties of the Chinese textile industry, which is already grappling with excessive labour costs and rising value of Yuan.

In order to counter the possible rise in prices, several textile producers, particularly the smaller firms, had piled large stocks of raw material during last year, but the prices of cotton are continuously falling since April 2011.

The prices of cotton rose from 17,000 Yuan per ton in May 2010 to almost 30,000 Yuan per ton or US$ 4,629 per ton towards close of the year and went further to hit a record high of 35,000 Yuan per ton in February 2011. But after that, a sudden fall has been recorded in the prices which have dropped by over 35 percent to 22,000 Yuan per ton at present.

Such an abrupt fall in the commodity prices and that too in a very short span was beyond anyone's expectations, and owing to the same, the big stockpiles that these firms had built up have become an issue for them. In fact, stockpiling has reduced the profit margin of smaller firms to five percent from normal 10 percent.

It is being claimed that though good number of orders are flowing in from Europe, the domestic industry is not keen on accepting the same due to meagre profit margins and market volatility. The manufacturers apprehend that by accepting orders at this time, they could only end up losing money.

Stocks of textile producers increased almost equal to 13.1 days of production in April 2011, over previous month, which was the highest stock registered anytime after March 2009.

In May, however, a slight decline in these stocks was seen which averaged to 38.1 days, but still this was 6.4 percent above the last three year's average.

The firms which bought cotton in bulk at an average price of around 30,000 Yuan per ton during last year are now finding it difficult to sell off these stocks even at discounted price.

It is feared that volatile cotton prices may drag the already meagre profit margins of the small as well as medium-sized textile producing firms with comparatively uneven input supply. This is also because these firms are prone to work suspension and production cuts.

The country's textile exports during January to April this year jumped 34 percent to US$ 28.9 billion.

Editor's note-With economies all over the world increasingly opening up, volatility in prices of commodities is likely to become a rule rather than an aberration. It is high time the textile industry should learn to turn the volatile situation in its favour.

Fibre2fashion News Desk - China

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