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Wool sector profits fall prey to RMB revaluation

Mar '07
On March 26, China's foreign exchange center pronounced that the middle exchange rate of US dollar against RMB was 1 dollar to 7.7393 yuan. This means that RMB appreciation range has increased nearly 5 percent since the reform of exchange rate.

Statistics of major wool enterprises show that with every one percent of RMB revaluation, profit margins decline at least one percent. Revaluation of the RMB exchange rate has continued to reduce multi-million-dollar profits of wool weaving enterprises and the industry has started to seek price increases.

In just three months of this year, RMB has set 17 highest records since the reform, exceeding 700 basis points. Experts have said that this revaluation would first hit textile, household appliances, and other labor-intensive export enterprises

Many enterprises said this year alone, their profits have dropped by 2-3 points. Several companies are relying on export tax rebates for survival, are facing more difficult days.

Industry officials said countless companies had already negotiated orders, the price has been agreed upon, but RMB revaluation reduces the scarce profits, even without adding the cost of raw materials and rising pressures of labor wages.

However, some sources believe that the overall export price of wool weaving enterprises still lags behind foreign sales price. Enterprises can consider negotiating with buyers and transfer part of their costs.

Fibre2fashion, News Desk - China

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