The butterfly effect of the Russia-Ukraine incident appeared, and no one from the raw material end to the downstream was spared! Since February this year, the situation in Russia and Ukraine has taken a turn for the worse, attracting widespread global attention.
Butterfly Effect of Russia-Ukraine Conflict
Turkish garment industry suffers severe setback
Since the international sanctions, the ruble has depreciated, the international payment system has been closed to Russia and other incidents have continued to ferment, and the clothing industry has also been in trouble. Among the 24 Turkish clothing brands in Ukraine, 267 stores and 180 sales points have been closed. Among the 32 brands in normal operation in Russia, 655 stores and 2,556 sales points are in a wait-and-see state, and there is a risk of closure at any time.
The president of the Mediterranean Association of Readymade Garment and Apparel Exporters (AKIB) said that Ukraine has stopped shipping goods, while Russia can ship but needs a long border wait. Therefore, clothing orders are facing a large number of cancellations and transportation delays. The losses of the Turkish clothing industry in Ukraine alone have reached 150-200 million US dollars, and even clothing orders in neighboring countries Poland are being cancelled. Official data from the Turkish apparel industry shows that the export value to Russia and Ukraine in 2021 will be US$173 million and US$287 million respectively, and the target export value to Russia and Ukraine in 2022 will be more than US$1 billion and US$750 million respectively.
Energy turmoil has burned into the cotton spinning sector
Indian cotton prices rose 6% in just 20 days
At the same time, tensions between Russia and Ukraine have led to intensified turmoil in the energy sector, leading to a significant rise in crude oil prices, which to a certain extent has driven commodity prices higher, which has had a great impact on consumer psychology and their purchasing power. If the U.S. dollar continues to strengthen in the future, the prices of U.S. imported goods may rise further.
The current operating pattern of the global cotton industry is tight. Affected by the uncertainties in demand and rising external energy prices, the uncertainty and volatility of industry operations may intensify. Russia and Ukraine are the main producers of wheat crops, and their price increases are bound to have a greater impact on market sentiment.
Specifically, from the news in the cotton textile industry, an Indian textile company stated that the Russian-Ukrainian battlefield has greatly affected its exports to many EU countries and consumption in destination countries. In recent months, cotton prices have been rising. Around February, the actual transaction price of Indian MCU-5 (length about 32mm) cotton rose from 78,000 to 83,000 rupees/kandy, an increase of about 6% in just 20 days.
Textile exports blocked
Increased risk of buyer abandoning goods
On the other hand, natural gas prices continue to rise, and the RMB exchange rate against the US dollar is approaching the 6.3 mark. For textile foreign traders, the exchange rate of the customer’s country has plummeted, and the cost of customer imports has increased sharply; the appreciation of my country’s RMB has reduced our export profits, and textile exports are expected to be further hindered. In addition, bulk textile raw materials are bound to undergo drastic changes as the situation in Russia and Ukraine evolves, and will further have an impact on the textile industry.
At the same time, the war has affected shipping services and intensified international shipping tensions. Currently, the Black Sea and Azov Sea waters of Ukraine and Russia have been added to high-risk areas. The ports in these waters are the main export hubs for transactions. Once they face blockade, they will Have a significant impact on trade. Under letter of credit transactions, documents may not be sent to the bank and cannot be negotiated. Telephone release of bills of lading under non-certificate payment methods will further lead to the rejection of the goods, making it difficult to return or resell the goods after entering customs, and increasing the risk of the buyer abandoning the goods. .
According to incomplete statistics, in the past month, more than 60 kinds of chemical raw materials have been soaring. It has become normal for prices to rise by 10,000 yuan per ton, with the highest increase being 145,000 yuan/ton. The escalation of geopolitical conflicts is naturally one of the reasons for “detonating” the industrial chain. As the situation in Eastern Europe heats up, natural gas and electricity prices soar again. Crude oil soars to an eight-year high, driving up prices of kinetic energy products. Anxiety about the energy crisis is also growing.
For midstream and downstream enterprises, whether it is the increase in raw material costs or labor costs, freight, miscellaneous fees, labor costs and other operating costs, they will become a subsequent heavy burden and continue to squeeze the profits of textile workers.
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