With freight and fuel prices soaring, the cost of global bulk raw materials has soared, which has directly dealt a heavy blow to Asian garment manufacturers in the lower reaches of the industrial chain. Many garment factories can only bear the pain of soaring production costs independently.
Cotton prices rise
Textile mills will use more polyester and make little profit
To stay afloat, some yarn and clothing manufacturers have even begun replacing cotton with cheaper synthetic fibers. According to foreign news, Siddiqir Rahman, managing director of Dhaka-based Sterling Group, said that Asian clothing manufacturers have been facing increasing losses for some time, and some small businesses have even suspended operations. operations, resulting in thousands of workers losing their jobs. However, as they struggle to recover from sharp increases in freight and fuel prices, Asia’s apparel manufacturers have been further hit by soaring cotton prices, with their global customers refusing to absorb the price increases. Some clothing manufacturers are replacing cotton with cheaper synthetic fabrics to stay afloat. The factories are running at full capacity but without profit.
After the outbreak of the Russia-Ukraine conflict, uncertainty about the outlook for European demand has exacerbated the plight of Asian textile and apparel manufacturers. In India, the world’s leading cotton producer, several small apparel manufacturers are struggling to fill orders from three months ago, when cotton prices were about a third below current levels. As the world gradually emerges from the COVID-19 epidemic, demand for clothing increased in the first quarter, but the recent resurgence of the epidemic in Asia and rising fuel prices caused by the Russia-Ukraine conflict still suppressed related demand. To cut expenses, some textile mills are using more polyester synthetic fibers, which cost about $0.60 to $1 per pound, compared with $1.40 per pound for raw cotton.
But this approach is clearly being copied by other ingredients.
After cotton
Another polyester raw material has been replaced
Of course, it’s not just cotton being replaced. Recently, driven by cost rigidity, the focus of the polyester bottle flake market has quickly reached a high of 9,650 yuan/ton. However, downstream demand is sluggish, and there is strong resistance to high-priced supply.
In the fourth quarter of 2021, the average market price of polyester bottle flakes was 7,703 yuan/ton, and the price difference with other plastic raw materials was 1,500-2,400 yuan/ton. The price advantage of polyester bottle flakes is obvious, and it has strong substitutability in the field of sheet packaging. The sheet industry has a high degree of acceptance of polyester bottle flakes. Later, driven by cost rigidity, the price difference between polyester bottle flakes and other general plastics gradually narrowed. Recently, it has surpassed the price of other plastics and completely lost its price advantage. The consumption of polyester bottle flakes in the sheet industry has shrunk significantly.
In the fourth quarter of 2021, the average spot price of glossy chips in East China was 6,692 yuan/ton, and the price difference with polyester bottle chips was 1,011 yuan/ton. As of the close of trading on June 13, the spot price of glossy chips in East China closed at 8,375 yuan/ton, and the spot price of polyester bottle flakes closed at 9,550 yuan/ton. The price difference between the two widened to 1,175 yuan/ton, and the price advantage of glossy chips expanded. Some sheet processing companies replaced polyester bottle chips with glossy chips. In the fourth quarter of 2021, the average price of recycled 3A-grade white flakes was 7,007 yuan/ton, and the price difference with polyester bottle flakes was 696 yuan/ton. As of the close of trading on June 13, the price of recycled 3A-grade white flakes was 7,100 yuan/ton, and the price difference with polyester bottle flakes was 2,450 yuan/ton. On the premise of guaranteeing processing fees, some sheet companies directly used recycled 3A-grade white flakes. Comparing polyester bottle flakes with glossy slices and recycled 3A grade bottle flakes, after the price difference widened, some of the demand in the sheet industry was lost.
Nowadays, under the pressure of high costs, if downstream processing companies want to “survive”, the two simplest ways are to increase the selling price of their own products, and the second is to reduce their own production costs. Increasing selling prices is difficult to implement due to terminal acceptance and competition. Most companies can only reduce costs by reducing raw material expenditures. It can be seen that the “place” of some high-cost raw materials in the industry may not be sustainable.
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