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Losses by Cotton Price Volatility in Interlining Industry
Written by Product Manufacturing Team
Monday, 18 July 2011, 8:30
The interlining industry in China is already in a hard time caused by the increasing labor cost, as well as the appreciation of the Yuan. Despite, the volatile cotton prices make times even harder for an interlining supplier on woven interlining, non-woven interlining and fusible interlining.
From May last year after a hard experience on the cotton price surge, many textile manufacturers and interlining suppliers increased their regular stocks of cotton raw material last year to counter the possibility of continuing increasing on cotton price. However, an unexpected plunge on prices resulted in massive losses on the manufacturers.
"The unexpected drop on cotton price disturb everyone's replenishment strategy," Sam Lee said, a senior officer of Interlining Source Limited. "No one had forecast such a plunge on the cotton price in such a short-term."
According to Lee, the original plan on increasing the cotton stockpile was to hedge against the dramatic surge on cotton price, however, this strategy has now become a problem to an interlining supplier on woven interlining, non-woven interlining and fusible interlining.
"Cotton is a major raw material for woven interlining," Lee said. "It contributes to a large part of a woven interlining price; that's why interlining supplier tried to increase their normal stock on cotton in the past half year. This is all because of the cotton price volatility."
Recent research shows that the cotton has been involved in a roller-coaster ride during the last 12 months. Back in May 2010, the cotton price was 17,000 Yuan a ton and it increased sharply to 30,000 Yuan a ton by the end of 2010. At February 2011, cotton price reached the highest record of 35,000 Yuan a ton, but plunged to 22,000 Yuan a ton in April.
Lee said a rough calculation on the losses by stockpiling have dragged some interlining manufacturers' profit margin down to 3% less than the original.
"All are caused by the cotton price volatility," Philip Kok said, a senior manager in Interlining Source. "Some interlining manufacturers are cautious on accepting orders, as they are not willing to take them due to the low profit, as well as the volatile market. In many cases, interlining suppliers for woven interlining, non-woven interlining and fusible interlining will end up with losing money."
Lee said that suspension and curtailment of production has been happened among some small and medium interlining manufacturers. According to the local market research agencies, some interlining suppliers have lost more than 1 million Yuan because of the cotton price volatility.
"It is hard to clear the stock even at a reluctantly discount price," Lee said. "Some counterparts in the interlining industry bought several hundred tons of cotton by the end of last year at price near 30,000 Yuan a ton."
Dealing with the cotton stockpile has become a difficulty for some small and medium interlining manufacturers.
At the meantime, interlining supplier's profits have been increasingly squeezed by the rising labor cost and appreciation of Yuan, according to Lee.
For more information visit http://www.interliningsource.com/.
Last Updated on Monday, 18 July 2011, 18:45