Affected by factors such as the sharp drop in cotton prices and weak demand, the current textile industry is not performing well. All sectors of the industry, including schoolbags, cotton farmers, cotton processing enterprises, and textile enterprises are collectively suffering. Cotton processing enterprises have either ceased or partially ceased production, textile enterprises are experiencing slow sales, and many cotton farmers are shifting from cotton to grain production.
Industry insiders believe that the shift in cotton farming has laid the groundwork for a new cycle of change. The current difficulties faced by the entire supply chain of cotton processing and textile enterprises will trigger a new round of industry reshuffling, forcing some small and medium-sized enterprises to exit the market.
The collapse in cotton prices has led many cotton farmers to switch crops. Dezhou City in Shandong Province, located on the northwest plain of Shandong, is a traditional cotton-producing region and also one of the main textile bases in the country. The city has 247 cotton textile enterprises with an annual cotton requirement of about 450,000 tons. Currently, the seed cotton price here has dropped to around 7.8 yuan per kilogram, a year-on-year decrease of 44%.
Ma Yuzhen from Zhaizhai Village in Laocheng Town, Wucheng County, Dezhou, planted 13 mu of cotton this year and harvested a total of 3,300 kilograms of seed cotton. When reporters visited her home recently, they found rooms and corridors filled with cotton. She told reporters, "The price is too low; I don't even feel like sorting it out anymore. The better quality seed cotton can be sold for 8 yuan per kilogram now, while the poorer quality can only fetch 7 yuan per kilogram. It's been a wasted effort this year!"
According to monitoring by the Dezhou Cotton Association, the current acquisition price for fourth-grade seed cotton in Dezhou is about 7.8 yuan per kilogram, a year-on-year drop of over 40%. Last year at the same time, the acquisition price for fourth-grade seed cotton reached a high of 14.4 yuan per kilogram.
Wang Xijun, president of the Shandong Lijin County Xijun Crop Cultivation Professional Cooperative and a member of the China Cotton Association, told reporters that due to low cotton prices this year, the profit margin for cotton farmers is too thin, and many cotton farmers have already shifted from cotton to grain production.
Ma Yuzhen said, "Cotton farming is time-consuming and labor-intensive. Compared to grain farming, cotton farming reduces the opportunity to work outside by at least three to four months. If we consider daily income from working outside to be around 70-80 yuan, the difference between cotton farming and grain farming could amount to 7,000-8,000 yuan."
It is understood that Dezhou is a major cotton-growing area, with a usual planting area of 2 to 3 million mu. In recent years, the planting area has significantly decreased, and many cotton farmers have switched from cotton to grain. In 2008, the cotton planting area in Dezhou was 2.9 million mu, 2.31 million mu in 2009, and dropped to 1.55 million mu in 2010. In 2011, due to higher cotton prices in the previous year, the planting area increased to 1.6 million mu, but only by 3%. This year, many cotton farmers have already uprooted their cotton plants early and planted wheat instead. According to estimates by the Dezhou Cotton Association, the cotton planting area in the city next year will decrease by 20%-30%.
Cotton enterprises are collectively “gritting their teeth to persist.”
Kangqiao Cotton Industry Co., Ltd. in Wucheng County is a relatively large cotton processing enterprise locally. Recently, when reporters visited, they saw a quiet factory area with four or five people lazily picking "three fibers" (chemical fibers, silk, hemp, hair, plastic ropes, cloth pieces mixed into cotton) from piles of cotton.
General Manager Sun Ronggui told reporters that since last month, operations have been abnormal, producing only when old customers need it. He said, "The company is facing 'double difficulty,' one end being the difficulty in collecting seed cotton due to farmers' reluctance to sell, and the other end being the low price of cotton lint making it hard to sell." Last month, the company barely broke even, and this month, it is estimated to lose 30,000-40,000 yuan.
The situation at Longxiang Cotton Industry Co., Ltd., which shares a wall with Kangqiao Company, is equally dire. When reporters visited the production workshop, they saw a worker dozing off against a machine. The company’s responsible person, Lü Baofeng, told reporters that the company is operating at half capacity mainly to retain workers and maintain relationships with some old customers.
Sun Ronggui and Lü Baofeng recalled that the cotton market from last year to this year has seen dramatic fluctuations. Last September, when new cotton came to the market, Sun Ronggui sold his first batch of cotton lint at 12,300 yuan/ton, after which prices quickly rose to 32,800 yuan/ton by mid-November. "After that, the good times were over, and prices have been falling ever since, reaching 19,000 yuan/ton now," he said.
As cotton processing enterprises face difficulties, the downstream spinning industry is also struggling. Wan Yongming, head of Huili Cotton Industry in Handan, Hebei Province, told reporters that the company has 18,000 spindles, but currently only 6,000 are operational. Products are being sold at 28,000 yuan/ton, while the cost is above 29,000 yuan/ton. "Even though we are losing money, we can't completely stop, otherwise, we won't be able to keep workers and old customers," he said.
Huayi Group in Wucheng County is mainly engaged in the production of fine-spun cotton yarns. Group Chairman Meng Qingchun told reporters that according to current market prices, the company loses 1,500 yuan for every ton of cotton yarn produced. "Currently, due to relatively weak downstream demand, spinning mills' inventories are continuously accumulating, and we can only grit our teeth and persist," he said.
Deputy Secretary-General Ma Juncai of the Dezhou Cotton Association introduced that since March this year, with the significant decline in cotton prices, cotton yarn prices have also sharply fallen, making it very difficult for textile enterprises to operate. Between May and July, about 80% of local small and medium-sized cotton textile enterprises either ceased or limited production, with difficulties comparable to those caused by the 2008 financial crisis. Since the end of August, with the stabilization and slight recovery of cotton prices, cotton yarn sales have improved somewhat, and suspended enterprises have gradually resumed operations. Since mid-September, the continuous fall in spot cotton prices has had a certain impact on downstream markets, with fabric and garment customers showing weak purchasing intentions, leading to blocked cotton yarn sales. The average operating rate of cotton yarn enterprises is only around 70%, and business operations have once again fallen into difficulties.
Key to overcoming the industrial chain's difficulties lies in structural adjustment
Ma Juncai said that due to the weak foundation of cotton production and the substantial increase in production costs, price fluctuations have caused difficulties throughout the entire supply chain, impacting cotton farmers the most. This has severely affected cotton farmers' enthusiasm for planting, leading to continuous reductions in planting areas in some cotton-producing regions, possibly sparking another wave of cotton price increases next year.
For processing enterprises, the biggest problem is the weak actual downstream demand and an unfavorable export environment. Sun Ronggui said, "The biggest issue right now is that we cannot see any hope for improvement. Every day, I receive a lot of industry information on my phone, but all of it is filled with pessimistic voices."
Meng Qingchun said that domestic textile enterprises have long relied on lower raw material costs and labor costs to dominate the market and grow rapidly. However, in recent years, domestic labor costs have rapidly increased, raising the cost of domestic cotton textiles, reducing international competitiveness, and causing a significant loss of foreign trade orders. This was evident at the recently concluded 110th Canton Fair.
According to reports, the transaction data from the 110th Canton Fair is not optimistic, with insufficient orders from Europe and America, reduced by 20%-30%, and more than 80% of the orders being short-term orders within six months, lacking long-term orders.
Industry insiders analyzed that although the national temporary purchase and storage policy has stabilized cotton prices, a new round of reshuffling in the cotton textile industry is inevitable. Domestic labor costs continue to rise, domestic cotton prices remain higher than international cotton prices, and the tight capital situation will persist. These unfavorable factors for the cotton textile industry are unlikely to fundamentally change, so the cotton textile industry will experience a new round of major reshuffling, and enterprises with weaker financial and technical strength will be forced to exit the market.
Ma Juncai believes that for processing enterprises, structural adjustment is the key. Only by increasing product added value, eliminating low-quality products, and phasing out backward production capacity can cotton textile enterprises find their way forward. The textile industry must undergo technological reforms to transform products from low-end and extensive types to high-end and refined ones, actively develop high-value-added non-cotton fibers, reduce cotton usage ratios, and decrease reliance on cotton.