Apparel / Textiles & Accessories

"Orders have dropped a lot now. All orders in July and August have been shipped, but customers have not added any more orders. The peak period is in March and April, when the orders were the most." On August 13, a clothing manufacturer in Shantou, Guangdong Mr. Lu told reporters that the hot clothing exports in the first half of the year seemed to be a bit "stopped".

According to incomplete statistics, about 43 listed companies in the textile and apparel industry have recently released performance or performance forecasts for the first half of the year, and 38 companies have expected to increase their performance, increase in the same direction, or turn losses into profits.

There are two major factors that are the driving force for the textile industry to change its past slump in the first half of this year.

1. The domestic demand market drives the textile manufacturing industry to pick up. Since the 2020 epidemic, promoting domestic demand has become the top priority of the Chinese government. In the context of economic stability and improvement, the Spring Festival, Tomb-sweeping Festival, May Day and other holidays in the first half of the year were superimposed, which drove the national sales of clothing, shoes and hats and textiles above the designated size to achieve a 33.7% increase in the first half of the year.

On the other hand, in recent years, the domestic manufacturing level has improved, and the "national boom" caused by sports brands such as Li Ning (02330.HK) and Anta (02020.HK) has strengthened consumers’ sense of identity with domestic clothing. , Becoming a major driving force for the growth of retail sales of online and offline wear products.

2. Overseas orders such as India have returned. The rampant delta mutated new crown virus has caused the textile industries of China's neighboring countries such as India and Vietnam to be in trouble. The good business environment of the domestic textile industry has the strength to accept orders from these countries.

In particular, the Indian market, affected by the lockdown measures during the epidemic, India's apparel industry exports plummeted by 24% in 2020, after a large number of textile orders transferred from China to India began to return to the country. Many textile companies in my country have successively accepted orders from the Indian and Southeast Asian markets, including Blum Oriental, Huafu Fashion, Hangmin shares, Lianfa shares and other companies mentioned that they have accepted orders transferred from overseas, and some companies are still close to full. Production operations.

However, accepting overseas orders may be temporary. Previously, the fundamental reason for the transfer of domestic textile orders overseas was that domestic labor and material costs were higher than those in countries such as India and Vietnam. This competitive advantage has become a thing of the past for domestic textile companies, leading to the emergence of "every time a foreign epidemic occurs." If it eases slightly, foreign trade orders will fall." In the second half of the year, some textile industries in India and Bangladesh began to recover, resulting in a "return" and loss of orders in July and August. Data shows that my country’s textile exports in July this year were 75.06 billion yuan, a sharp drop of 33.73% year-on-year, a month-on-month drop of 6.9%, and an increase of only 1.3% over the same period in 2019.

The above-mentioned listed companies have not disclosed to the outside world the specific data of the overseas return orders since the epidemic. Except for a few companies such as Blum Oriental, most of the companies' income sources come from domestic sources. Therefore, if overseas return orders, the "duck in hand," fly back, it will have little impact on most companies.

"Return" orders slowed down obviously

“China’s textile and apparel export markets are concentrated in the European, American, and Japanese markets. With the increase in vaccination rates in these countries and the normalization of herd immunity, their imports of textile anti-epidemic products have declined significantly, and some developing countries have gradually resumed production, with orders returning and Transfer. In addition, due to the rapid resumption of work and production in China, the export base of related textiles last year was relatively large, so the year-on-year decline in exports of such products is inevitable." Lan Qingxin, researcher and doctoral tutor of the National Opening-up Research Institute, University of International Business and Economics, analyzed to reporters .

Regarding the slowing trend of backflow orders in July and August, Bai Ming said that the epidemic in India was relatively serious in the first half of the year, and many orders were transferred to China in April and May. In the second half of the year, some industries in India and Bangladesh have also recovered. Therefore, there was a shift in orders from July to August.

Lan Qingxin further stated that in addition to the return of orders is an important factor affecting the growth rate of exports, rising costs and slow economic recovery are also a major reason for suppressing demand.

Regarding the decline in textile exports reflected in the statistics of the General Administration of Customs, Mr. Lu is engaged in production on the front line, and he feels more intuitive. Mr. Lu said, “I felt it in the first half of this year. Whenever the foreign epidemic eases slightly, foreign trade orders will decline.”

When asked whether Mr. Lu and the small and medium-sized business owners around him were worried about not having orders, Mr. Lu said frankly, “The price of raw materials in recent times is the highest in two years. It doesn’t matter if you can’t receive the order, or you will lose money, after all. The clothing industry is a small profit industry."

Still facing many uncertain risks

As the epidemic hits to find alternative orders, it is destined not to last long.

Bai Ming pointed out, “In recent years, China’s outward transfer of orders was only a special situation last year. Many Chinese factories resumed work and production at the earliest. In many countries, where the epidemic situation is still serious, it has affected their textile exports and customers can’t wait. I went to China to buy textiles. Now that the production capacity of those countries has recovered, the customers ran back."

Large domestic textile and apparel companies are also “knowledgeable” about the temporary nature of the return of orders. Jiansheng Group pointed out in the third section of the “Management Discussion and Analysis” of the semi-annual report, It is still a general trend for Southeast Asian countries to transfer low- and mid-range production capacity."

With the gradual normalization of global epidemic prevention and control, the trade demand for epidemic-related items has weakened, and many manufacturing countries have restarted production. Li Xingqian, Director of the Foreign Trade Department of the Ministry of Commerce, stated on July 22 that this is a challenge for China’s foreign trade. It is also an opportunity.

Since most textile manufacturing companies do not involve upstream raw materials, but purchase raw materials at home and abroad, the price of raw materials such as cotton is the most intuitive factor that affects the growth of the net profit of textile manufacturers.

Since the first half of this year, the price of cotton-based raw materials has been at the highest level in two years. Since the end of June, cotton has started a new round of trend rise, and the cumulative increase has so far exceeded 15%. As of August 16, cotton spot prices in Jiangsu, Zhejiang and other regions have climbed above 18,100 yuan/ton. With the continuous destocking pattern of global and Chinese cotton and the continued strong demand, the momentum of cotton growth remains strong. For textile companies with prosperous production and sales, this will weaken corporate profits.

In order to offset the impact of rising raw material prices, many companies adjusted their procurement strategies based on market prices, replenishing stocks on dips, and at the same time reserve cotton rotation and import quotas to supplement resource procurement channels. Blum Oriental stated that “85-90% of the raw materials of the company’s products are cotton. Because of the large reserves of cotton, it has not been affected much.”

However, as cotton prices continue to rise, and the recent spread of Delta virus has delayed the transportation of goods and raw materials, textile companies are less willing to stock up on raw materials. Under this circumstance, textile companies will face a situation where profits are constantly being compressed.