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Crisis affects textile value chain from farmer to retailer

19
Dec '08
Many textile enterprises say overall sales of textile products performed well in the first half of this year, however, midway through the year, orders of textile industry have significantly reduced even falling by as much as 40 percent.

Related research shows cotton yarn prices in the last few months have fallen by a higher proportion than the drop in raw cotton prices, the result of which, spinning enterprises have started to face substantial losses leading to over most of the downstream enterprises facing trouble due to rising inventory levels.

As a result of a more abnormal fall in cotton yarn prices and growing inventory levels at the same time, the textiles have cut down on their operating rates or shut down completely. This has also resulted in workers wages being lowered substantially while others are facing massive layoffs. The whole textile industry chain depicts a picture of overcapacity, large inventory and tight capital situation.

The foreign trade figures of the sector in November depict that the financial crisis has intensified, demand in export market has shrunk and the textile industry is bearing the brunt of the crisis with difficulties increasing with each passing day.

At present, two-thirds of China's textile enterprises are realizing a mere profit margin of about 0.6 percent with many enterprises facing risk of collapse and resulting in a decline in demand for cotton. This is leading to the whole value chain getting disrupted right up to the door steps of the cotton farmer.

The industry is also facing the difficulty of servicing their loans leading to an increase in interest costs and thereby adding more woes to the already over burdened sector. The worst part is that they are also not able to access new credit to keep their enterprises running.

Fibre2fashion News Desk - China


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