Commerce Department China"China·Shengze Index" Prosperity Comment

 According to the monitoring survey of Commerce Department China·Shengze Silk & Fiber Index (follow-up, we name it Shengze Index for short), in February, 2011, the monthly prosperity index dropped continually. Statics demonstrate: the overall market prosperity index of February is 80.21points, which dropped 2.17points compared with the January. See from specific sorts of production, index of chemical products is 80.34 points, dropped 1.87points compared with January, while silk products increase 5.61 points, closing at 86.50points.

(Above picture is the overall prosperity index graph of Shengze market)

(Above picture is the prosperity index graph of chemical product)

(Above picture is the prosperity index graph of silk product)

Form the above three pictures, we can see that just as we expected in January. The market is affected by the low rate of operation rate that results from the lack of labor force after the spring festival, in addition with the slack raw material market, the dramatic price increase of chemical fiber and cotton fiber, factors like that, brought about a great pressure on marketing. Thus, the February prosperity index will slightly drop continually.

       Now let’s take the following secondary classification index graphs to make some analysis on the factors for the dropped February index.

1.    Influencing factors for Chemical product index (Feb) analysis:

The following table is the secondary classification index fluctuation for chemical product in February:

The following table is the February secondary index contrast with the corresponding period last year.

From the above table, we can find that the general secondary index trend is good. However the market overall judgments index dropped continually, we can see that the follow-up market is generally looked down upon. While other product index, such as Sales Price, Cost, Innovation, Sales Volume, Order，Customer Popularity，Shipment，Overall Management, increased on the whole. The main factor is the increasing price of raw material in the previous period that restricted the downstream demand. But when it comes to February, the downstream market state is eased to some degree. The former orders comes one by one, thus boost the above index increase. And the increase of index in Stock, Profit (loss) Change, Working Capital Turnover, Corporate Finance, Loan Defaults, Clerk Wage, Transport Cost, Resource Supply, it is in the contemplation.

While from the first table, we find that all the indexes increased to some degree. So the conclusion is that the overall trend of textile industry is optimistic.

Now, I want to make some analysis on the index fluctuation as for the respective kind of product.

1.    Influencing factors for Chemical product index (February) analysis:

(1) Slack season, sales volume increase hard

Month around the spring festival is the slack season of textile industry. And the spring festival this year is in February. Affected by the traditional slack season, the sales volume in February is hard to increase. Mainly the orders are previous orders, new orders are scarce, even there are new orders, and manufactures would rather to put it off after the festival.

(2) Soaring costs, bound the marketing of fabrics

Under the influence of increased demand, deflation, and speculative force, price of raw material keeps its increase from the end of 2010. Among which, cotton, polyester filament, polyester staple fiber, viscose staple fiber and some other kind of raw material also increased by some degree. The amount of increase reached 15%-20% on the whole, thus leading a dramatic increase in the cost of materials.

From the end of last year, the central bank has been raising interest rates three times in order to curb the rising commodity price and inflation. The more tight the monetary policy, the harder the loan amount will be. Therefore, many enterprises, turned to the private, the lending rates therefore increase accordingly, making the enterprise financial cost high.

After the festival, in the Yangtze River Delta, Pearl River Delta and some other coastal developed areas, many manufacturers offers a high wage in order to keep or attract the labor force. In Shengze town, the wages are increased 20% on the whole, the front line weaving workers are offered over 5000CNY per month. Now the labor force cost also increased a lot.

For the series of cost rising, greige prices are pushed up inevitably, but for the increase fabric price, would the end market accept or not, that’s the question. Now, marketing is becoming slack comes to appear.

(3) Appreciation of the CNY, VND depreciation, the price advantage in the Chinese textile exports in decline

On 11th Feb, VND against Dollar depreciated, which is 9.3%. This is the biggest adjustment made by the Vietnam central bank on 11th Feb. While the RMB is appreciated continually, the middle price of CNY against Dollar is 6.5757 on 25th Feb. It creates a great influence on the export of textile and clothing in China.  According to the report by Global Sources, the Chinese textile exporters has the feeling of market transforming, for the 31% buyers interviewed indicated to increase the procurement from Vietnam. One of the main reason is that products in Vietnam is 30% cheaper than that in China.

(3) Foreign trade protectionism is increasing, textile exports is difficult to enlarge

In 2010, Chinese products encounter trade friction frequently. According to the survey of World Bank, although the total turnover of Chinese export products is lower than 10% of the world, there are 47% trade remedy investigation and 82% completed cases are towards China. As the statistic demonstrates, during the period of Jan-Oct 2010, the total call back number of clothing item is 209, which increased 130%, compared with the same period of the previous year. Meanwhile, the U.S. Consumer Product Safety Commission recalled clothing items 47, increased 42% percent than that of the previous year. The intensified trade protectionism has raised the threshold of Chinese textile and clothing exports, bonding the enlargement of textile and garments exports, and also increases the risk.

For example, the Argentina government has announced the No. 45 bill, which requires non-automatic licensing management measures for the imported products. Products, like metallurgical products, textile, luxury cars, sorts of molds, glass products, bicycles and accessories.

Influencing factors for Silk product index (February) analysis:

The following table is the secondary classification index fluctuation for silk product in February:

The following table is the February secondary index chemical products contrast with the corresponding period last year.

(1)Silk price keeps high

(2)Recovery of domestic demand

3. Aftermarket forcast

We believe the Shengze market will rebounds in March, though the index dropped in Feb. The export volume in February is 10.443 billion dollars. Chain relative -51.7%, on year-on-year -17.4%, cumulates increase 13.6%, which mainly because of the spring festival. Export turnover after the festival will greatly increase. One reason is the compensation of stock by the U.S. market, and another reason is the increasing order after the festival. Under such a circumstance, textile market in Shengze will surely go upward. But there are also some aspects to be aware of, as the state has confirmed a stable keynote of monetary policy, exchange rate of RMB against the U.S. dollar will remain its slow appreciation trend, and cotton, chemical fiber, textile raw materials will continue to run high. All these ask for an early preparation of the enterprises, and also take some necessary measures.