Textile industry: will enter the adjustment interval in the fourth quarter
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According to the latest report on the textile and apparel industry climate index and related data, the economic conditions of the textile sector showed continued improvement in the third quarter of 2010. Key indicators such as exports, employment, profits, and fixed asset investment all recorded year-on-year growth, albeit at varying levels. The textile industry’s economic index for Q3 2010 stood at 101.0 points, up by 1.1 points from the previous quarter, signaling a positive trend. In contrast, the garment industry's prosperity index was 99.1 points, remaining largely stable compared to the previous quarter but showing a slight downward movement. Overall, the textile industry outperformed the apparel sector in terms of economic performance.
Looking at domestic demand, after seasonal adjustments, the textile industry generated sales revenue of 735.17 billion yuan in Q3 2010, reflecting a 23.5% year-on-year increase and a 11.8% rise compared to the previous quarter. Meanwhile, the apparel manufacturing sector reported sales of 298.17 billion yuan, with a 19.0% year-on-year growth and a 12.5% quarterly increase. Exports remained strong across both sectors. Textile exports reached $57.35 billion in Q3, up 29.1% annually and 40.6% from the previous quarter—setting a new record. Apparel exports totaled $38.64 billion, an increase of 26.1% year-on-year, returning to historical average growth levels.
However, the fourth quarter brought increased pressure on both industries, primarily due to rising raw material costs. Cotton prices surged, prompting textile companies to switch to polyester staple fiber and viscose fiber as substitutes, which in turn pushed up the prices of certain chemical fiber products. These rising input costs led to higher ex-factory prices for textile goods during the first half of the year.
Notably, the price increases in cotton and chemical fibers significantly boosted the profitability of the textile industry in the first half of the year. This was because the prices of intermediate products rose faster than the cost of raw materials, allowing for higher profit margins despite rising expenses. For example, the cotton yarn industry saw a 16% growth in the first half of the year, with a consistent growth rate of around 10% since 2000. The China Textile Industry Climate Index also indicated that textile product prices were in the red signal zone during the first three quarters. However, as low-cost inventory materials ran out, the higher-priced raw materials purchased later began to erode profit margins, suggesting that the textile industry might see slower growth in the fourth quarter.
The impact of this round of rising raw material prices on the apparel industry became evident in the third quarter, contributing to a slight decline in profit margins. This trend is expected to continue into the fourth quarter, potentially leading to further reductions in total profits for apparel manufacturers.
Despite these challenges, the long-term outlook for the textile and apparel industry remains positive. As part of the broader consumption sector, it stands to benefit from the "Twelfth Five-Year Plan," which aims to expand domestic demand, improve people’s livelihoods, and boost residents' income. There is still a significant gap between urban and rural incomes, with per capita clothing expenditure in rural areas being only one-sixth that of urban residents. As overall income rises, especially among middle- and low-income groups, demand for textile products is expected to grow substantially. Over the next five years, the domestic market for textile and apparel companies is poised for substantial expansion.
At present, structural adjustment remains a key focus for the industry. Short-term challenges have accelerated the transformation process, pushing companies to develop more effectively along the "smile curve." This includes enhancing front-end design and development capabilities while strengthening back-end brand marketing efforts. By increasing the value added to their products, companies can improve profitability and drive sustainable growth. This approach is essential for long-term industrial restructuring and competitiveness.