US is an important country for textile global marketfundamentals, and its up or downturns will impact the other textile markets.Generally, US import more garments and clothing from other developing nationsin high volumes than any other country. Hence the financial crisis in the USA economy will have an impact on textiles import also which have dropped the marketsentiments in overseas market since the last few months.
It was sure that the financial turmoil will have anadverse impact on the global textile sector. But the real impact would be feltif the economic slow down in the US and European economies persist over a longduration (more than 2 years), which would have an impact on the basicfundamentals of demand supply of various economies. This would result not onlyin the reduction in demand for the Textile Sector but also result in pricing pressures at time to time in markets.
Some have compared the circumstances in US withthe Great Depression of 1929, but this condition is far from a depression in fact its not even a collapse of economy. In 1929 people struggled through thewinter with no heating and no food, as per current situation this is next toimpossible. Speculators not foresee such extensive suffering in the U.S.A anyhow in any recent years.
In US, August 2008 unemployment figures were at 6.1%, according to the USBureau of Labor Statistics. During the Great Depression in 1929, unemployment levelwas more than 25%. According to the Commerce Department GDP was at 2.8% whichwas reduced by 0.5% than the expected 3.3%, figure announced a month earlier. Downturnin U.S has an impact on various global textile hubs and in last few months wesaw often in headlines as below.
Impact of Crisis in U.S:
During the last month, soaring costs of Man made fibers rawmaterials and tough foreign competition and weak U.S economy hurt the AmericanFibers and Yarns Company. According to the filings, American Fibers owes US$ 10million to US$ 50 million to dozens of suppliers and utility companies. Amongthem are big companies like Georgia power, Dow Chemical, and Sonoco Products. Thefuture of the company and its remaining 350 employees are uncertain; AmericanFibers hired RAS Management Advisers to help supervise the bankruptcy. Basicreason for the crippled down was high fuel costs which significantly push upthe price of synthetic fibers as all the fiber are mostly petroleum based.Along with poor economy, decreased sales hit high to the company pillars.
There could be more companies like this and many U.S basedmanufacturers are planning to shift their production facilities to production hubs where they could produce yarns/fibers at cheaper rates. Off course the questionraises as to how much it impacts. Economic experts hold high hopes that if GDPremains near by 3 percent till end of year, there will be much impact onTextiles industries. This will certainly have an impact on sales of textilesand appear in the year 2008 and next quarter. The U.S textile price index is less than 3 percent on YOY based analysis. Picture is very much clear for U.Stextile and apparel sector that price gap between the U.S and foreign marketswill narrow down in coming year, 2009. As the price gap is reduced, interest offoreign exporters to U.S is also decreased. Comparing the import shipments in the1st and 3rd Quarter of 2008 a decline is seen in the shipmentaround 4.6%, indicating huge space in the textile market. Experts foresee a continuousdecline in imports by 2 percent annually till 2010. Here simply fundamentalsindicating that price of textiles and apparels will be increased in the U.Smarket. The price hike in Chinese garments is approximate by 15 percent to 25percent as the increase of the Chinese currency by 18 percent against the USdollar was also supplementary to the decline in the export figures. This mayeven lead to some basic changes in the consumers mind set could open newdirections to U.S textiles industry.
Impact of Crisis in China
China the vast supplier of U.S market in terms ofTextiles and Apparels facing challenge to find new market for the Textiles she produced. RMB appreciation and shrinkage of demand badly hurt the consumption of Chemical fibersin Chinese Textiles industry. In the first two quarters, Chinese chemicalfibers increased at the rate of 7 percent, overall textiles industries indexwas growing at near by 10.5% which was considerably lower in the YOY analysis.Nearly 25 percent of chemical fiber producers endure deficit in sales figures.Chinese Chemical fiber sector recorded a loss of 2.05 billion RMB. Similarhiatus was there in Chinese RMG sector too.
The year 2008 would get over, but Chinese textile exporters are feeling pessimistic in current days and seem to be worried about the consumption of textiles in U.S for the next year. Despite the fact that the coming year is quota free for exports to US, textile industry in U.S is being squeezed by the economic predicaments caused by housing market debacle, credit crunch, and rising commodity prices but still hopes are not over. In this regards, the Committee set by the U.S Government has formally requested the International Trade Commission (ITC) to provide detailed information about the Chinese textiles and clothing imports which will be helpful in imposing new import quotas. Here also we foresee good opportunities for the textiles producers other than china.
Some market research experts believe that the Government body has taken initiatives to stimulate liquidity in the economy to tackle the financial turmoil, and that the consumer market is going to recover by end of this year. On the contrary, a few others state that, the recession will last up to the first half of the next year and may not have a recovery until the end of 2009.
Data of RMG industry said that investment in fixed assets reduced with industrial slowdown rates. Total investment in last 3 Quarters of 2008 was 16 percent and was reduced to 11.15 % in the last Quarter of 2008. Similarly growth rate of social investments in fixed assets over the similar duration was decreased. As per the last statistics arrived growth rates in Chemical fiber industry was 4.9%. In sub sector of textiles growth rate was 19.5 % & 18.5 % with respective to clothing and footwear industry.
Government also provided some financial help to companies like Hualian Sunshine who are on the edge of bankruptcy due to turbulence of high volatile market. The Government of Shoxing also turns active to save companies and contribute a lot in restructuring process. Possibility of takeover is also very bright as Huaxi group show huge interest in it. Few other biggies like Jianglong Holding, Chinas biggest integrated textile and cloth trading company was closed. Kegiao industrial zone was also closed. As far as concerns of China we can assure that there is no more negative growth rate, just growth rate is facing challenges from the luster lack demand in the market
Impact of Crisis in other Asian Countries
Fibre consumption in Asia increased by 9.0% or 4.5 million tons in 2007 to reach 119,584 million lb. Man-made fibre usage enhanced to 11.4% to reach 73,310 million lb--representing 61% of the total. At the same time, production of man-made fibres went up by 10.8% to 77,880 million lb. In Total fibre consumption, the share of man-made fibres increased a record 67.2% during the year. The second largest consumer is S Asia, followed by S E Asian countries with 8%. The rest of the 7 percent was covered by East Asian countries like S Korea, Taiwan and Japan.
In Pakistan, the Government provided measures to the textiles sector and to those who are on the verge of default. The Government tries to reduce pressure on producers due to any compliance and certification. Only in Pakistan there are approximately 500,000 spindles are on the edge of closed down due to high production costs. Plants which are still running under hope to improve the situation soon with the government grant. In Pakistan cost of production initially declined or remained static but now if conditions do not improve much the fear come true and many mills go sick in coming few months.
Analysis of Indonesian Industries confirmed that growth of manufacturing sector was poised in textiles, footwear and in the chemical sectors; mainly. Indonesian Chambers of Commerce confirmed that at the end of the 2nd Quarter of 2008, loans repayment in the bank was decreased. At the end of this year the amount may probably be increased to nearly US$ 7000 million. Industrial growth rate of Indonesia is also affected due to this. In first half of 2008 Textile industry growth rate was near by 3.43 percent, which was declined to near by 2% in 3rd Quarter of 2008.
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