Affected by factors such as the sharp drop in cotton prices and weak demand, the overall performance of the cotton textile industry is currently depressed. Farmers, cotton processing enterprises, and textile enterprises across the entire industry are collectively suffering. Cotton processing enterprises have either shut down or are operating at half capacity, while cotton textile enterprises are experiencing slow sales. Many cotton farmers are shifting from growing cotton to grain.
Industry insiders believe that the shift in cotton farming sets the stage for a new cycle of development. Meanwhile, the current difficulties faced by the entire industrial chain of cotton processing and cotton textile production will trigger a new round of industry reshuffling. Some small and medium-sized enterprises will be forced out of the market.
The sharp decline in cotton prices has led many farmers to switch crops. Dezhou City in Shandong Province is located on the northwest plain of Shandong and is a traditional large cotton-producing area. It is also one of the main textile bases in the country. The city has 247 cotton textile enterprises with an annual cotton requirement of approximately 450,000 tons. Currently, the price of seed cotton has fallen to around 7.8 yuan per kilogram, a year-on-year decrease of 44%.
Wu Chengzhen's family in Zuzhai Village, Laocheng Town, Wu Cheng County, Dezhou, planted 13 mu of cotton and harvested 3,300 kilograms of seed cotton this year. Recently, when reporters visited her home, they found rooms and corridors piled high with cotton. She told reporters, "With such low prices, I've lost the motivation to even sort the cotton. Now, good quality seed cotton can sell for about 8 yuan per kilogram, but poorer quality only fetches around 7 yuan per kilogram. This year has been a wasted effort!"
According to monitoring by the Dezhou Cotton Association, the current acquisition price for fourth-grade seed cotton in Dezhou is around 7.8 yuan per kilogram, a year-on-year drop exceeding 40%. Last year at the same time, the acquisition price for fourth-grade seed cotton reached a peak of 14.4 yuan per kilogram.
Wang Xijun, the president of the Huijun Crop Planting Professional Cooperative in Lijin County, Shandong Province, and a member of the China Cotton Association, told reporters that due to the low cotton prices this year, the profit margin for cotton farmers is too thin, and many have already switched from cotton to grain cultivation.
Ma Yuzhen said, "Cotton farming is time-consuming and labor-intensive. Compared to grain farming, cotton farming reduces working time by at least three to four months. If you consider daily income from working outside at around 70 to 80 yuan, the difference between cotton and grain farming amounts to about 7,000 to 8,000 yuan."
It is understood that Dezhou is a major cotton-growing region, with a usual planting area of 2 to 3 million mu. In recent years, the planting area has significantly decreased as cotton farmers switch to grain farming. In 2008, Dezhou's cotton planting area was 2.9 million mu, in 2009 it was 2.31 million mu, and in 2010 it dropped to 1.55 million mu. In 2011, with relatively higher cotton prices from the previous year, the planting area increased to 1.6 million mu, an increase of only 3% year-on-year. This year, many farmers have already pulled up their cotton plants early and planted wheat instead. According to estimates by the Dezhou Cotton Association, the city's cotton planting area next year will decrease by 20-30%.
Cotton enterprises are collectively "struggling to persist." Kangqiao Cotton Industry Co., Ltd. in Wu Cheng County is a relatively large local cotton processing enterprise. Recently, reporters observed the factory premises to be quiet, with only four or five people lazily picking out 'three fibers' (chemical fibers, silk, hemp, hair, plastic ropes, cloth pieces, etc.) from the cotton piles.
Sun Ronggui, the company's general manager, told reporters that since last month, operations have not been normal, producing only when old customers need it. He said the company is facing "two ends of difficulty," one being the difficulty in acquiring seed cotton due to farmers' reluctance to sell, and the other being the low price of lint cotton making it hard to sell. Last month, the company barely broke even, and this month, it is expected to lose 30,000 to 40,000 yuan.
Similarly dire conditions exist at Longxiang Cotton Industry Co., Ltd., which shares a wall with Kangqiao Company. When reporters visited the workshop, they saw a worker dozing off near a machine. Lu Baofeng, the company's responsible person, told reporters that the company is currently semi-operational, mainly to retain workers and maintain some old customers.
Sun Ronggui and Lu Baofeng recalled that the cotton market from last year to this year has experienced significant fluctuations. Last September, when new cotton hit the market, Sun Ronggui sold the first batch of lint cotton at 12,300 yuan per ton. Prices quickly rose, reaching 32,800 yuan per ton by mid-November. "After that, the good times were over, and prices continued to fall, currently reaching around 19,000 yuan per ton," he said.
Lint cotton processing companies are in trouble, and downstream spinning industries are also struggling. Wan Yongming, the head of Huili Cotton Industry in Handan City, Hebei Province, told reporters that the company has 18,000 spindles, but currently, only 6,000 are operational. Products are sold at 28,000 yuan per ton, while the cost is over 29,000 yuan per ton. "Even though we're losing money, we can't completely stop production; otherwise, we won't be able to retain workers and old customers," he said.
Huayi Group in Wu Cheng County is a company primarily producing fine-spun cotton yarn. Group Chairman Meng Qingshun informed reporters that at current market prices, the company loses 1,500 yuan for every ton of cotton yarn produced. "Currently, due to relatively sluggish downstream actual demand, spinning mills are accumulating inventory. We can only grit our teeth and continue," he said.
Deputy Secretary-General Ma Jun Kai of the Dezhou Cotton Association introduced that since early March this year, with the sharp decline in cotton prices, cotton yarn prices have also significantly followed suit, making it very difficult for textile enterprises to operate. From May to July, among local small and medium-sized cotton textile enterprises, about 80% either ceased or limited production, with difficulties comparable to those caused by the 2008 financial crisis. Since late August, with the stabilization and rebound of cotton prices, cotton yarn sales have improved somewhat, and shutdown companies have gradually resumed operations. Since mid-September, the continuous decline in cotton spot prices has had a certain impact on downstream markets. Fabric and clothing customers have weak purchasing intentions, leading to blocked cotton yarn sales. The average operating rate of cotton yarn enterprises is only around 70%, and production and operation have once again fallen into difficulties.
The key to overcoming the difficulties in the industrial chain lies in structural adjustment. Ma Jun Kai said that due to the weak foundation of cotton production and the substantial increase in production costs, price fluctuations have caused the entire industrial chain to face difficulties. The impact on cotton farmers has been the greatest, seriously affecting their enthusiasm for planting. In some cotton-producing areas, the planting area has continuously decreased, and next year there may be another wave of cotton price increases.
For processing enterprises, the biggest issue is the weak downstream actual demand and an unfavorable export environment. Sun Ronggui said, "The biggest problem now is not seeing any hope. Every day, I receive a lot of industry information on my phone, but everyone expresses disappointment."
Meng Qingshun said that domestic textile enterprises have long occupied the market and developed rapidly with advantages of lower raw material costs and labor costs. However, in recent years, the rapid increase in domestic labor costs has raised the cost of domestic cotton textiles, reducing international competitiveness and severely losing foreign trade orders. This was evident at the recently concluded 110th Canton Fair.
According to reports, the transaction data of the 110th Canton Fair is not optimistic. Orders from Europe and America are insufficient, with reductions reaching 20-30%. Moreover, medium and short-term orders within six months account for more than 80% of total orders, lacking long-term orders.
Industry experts analyzed that although the national temporary purchase and storage policy stabilized cotton prices, a new round of reshuffling in the cotton textile industry is inevitable. With the continuous rise in China's labor costs and domestic cotton prices consistently higher than international prices, along with tight capital situations continuing, these unfavorable factors for the cotton textile industry are unlikely to fundamentally change. Therefore, the cotton textile industry will experience a new round of major reshuffling, forcing a batch of enterprises with weaker capital and technical capabilities to exit the market.
Ma Jun Kai believed that for processing enterprises, structural adjustment is the most critical. Only by increasing product added value, eliminating low-quality products, and phasing out backward capacities can cotton textile enterprises find their future. The textile industry must undergo technological transformation, transforming products from low-grade, extensive types to high-grade, refined ones, and actively developing high-added-value non-cotton fibers to reduce cotton usage and dependence on cotton.