Since November, the price of Xiqiao cotton yarn in Guangdong has seen a significant upward trend. Last month, prices rose by several thousand yuan per ton, with some products even surpassing 10,000 yuan per ton and continuing to climb. On November 2nd, the market prices for 10S, 16S, 32S, and 40S cotton carded yarn in the Guangdong Xiqiao yarn market were 22,100, 24,500, 33,800, and 35,000 yuan per ton respectively. The prices for 10S, 21S, and 32S cotton bamboo yarn stood at 30,300, 31,600, and 32,900 yuan per ton, while 21S and 32S pure polyester yarns were priced at 15,500 and 16,900 yuan per ton. By November 8th, these prices had surged significantly: 10S, 16S, 32S, and 40S cotton carded yarn reached 30,100, 42,500, 41,800, and 43,000 yuan per ton, while 10S, 21S, and 32S cotton slub yarn hit 38,300, 39,600, and 40,900 yuan per ton. Pure polyester yarns increased to 23,400 and 24,500 yuan per ton, showing an alarming rate of increase.
Located on Guangfo Road, the textile trade area is the largest denim distribution center in Guangdong. Recently, reporters spoke with local businesses in the Guangzhou-Foshan district and found that the surge in cotton yarn prices has left many textile companies struggling. According to Mr. Chen, an industry insider from Pingdi, nearly a quarter of factories are either suspended or operating at half capacity due to the sharp rise in cotton yarn costs. He warned that more factories may shut down before the end of the year if the trend continues.
Reporters visited several businesses, and some confirmed that factory shutdowns have already occurred. One denim enterprise in the business district told reporters, “Every day, the price changes, and customers can't accept it.†It's understood that the profit margin for denim manufacturers is typically around 2 yuan per meter. However, since last year, as yarn prices continued to rise, denim prices have increased by about 6 to 8 yuan per meter. Despite this, profits have actually dropped by 30%.
Cowboy companies usually have a production and delivery cycle of 7 to 10 days. However, when orders are placed, the price of cotton yarn and the shipping price can differ by as much as 8,000 yuan per ton. Most manufacturers choose not to raise the shipping price to maintain credibility, but the high cost of raw materials far exceeds their ability to absorb the losses.
One jeans manufacturer told reporters, “Now, the profit for processing a pair of jeans is between 3 to 5 yuan. Producing 10,000 pairs takes about half a month to 20 days, but within 20 days, the price of denim has risen by more than 5 yuan.â€
The market is currently chaotic, with most businesses in the flat-field shopping district producing their own goods. The product prices are among the lowest in the country, and cash transactions are common. However, purchasing raw materials involves a turnaround time of about 10 days, often failing to keep up with the rapid price increases. Garment businesses struggle to accept low prices, making the risk high.
Mr. Lin, a veteran trader in the flat market for over a decade, said, “The market is unstable, and the risk of operations remains high.â€
Product upgrades and competition remain intense. Over the past three years, the introduction of new Belgian rapier looms has elevated the overall quality of denim. However, competition between enterprises is still fierce. In 2008, due to financial turmoil and the appreciation of the RMB, many companies invested in advanced looms. Although this helped achieve profitability, the entry of many similar machines led to a sharp drop in profit margins.
In recent years, nearly 100 companies in Pingdi have installed new equipment, creating a new wave of competition. Profits from new products fell by about 30% due to the intense competition. The soaring yarn prices have almost erased all the added value from these upgrades, and the fast-changing market conditions add to the operational risks.
Industry leaders are cautious. With cotton yarn prices rising like a hurricane, confidence among cowboy manufacturers has been severely shaken. Reporters interviewed nearly 20 factory owners, and all expressed the same sentiment: “Maintaining normal operations before the Spring Festival is a victory.†They hope that cotton yarn prices will stabilize after the holiday.
Traditionally, many merchants in the flat market would stock up on denim fabric before the Spring Festival, storing millions of meters in warehouses. However, this year, many companies are hesitant to do so. Some large manufacturers have halved their inventory plans, while small-scale factories without advanced equipment have simply stopped production. Some even consider scalping their output.
Ma Chusheng, general manager of Dasheng Textile Co., said, “Currently, starting up production carries a huge risk. With the New Year approaching, if we stop work during the holiday, our employees might have difficulty finding jobs. We want to ensure that over a thousand employees can have a peaceful Spring Festival.â€
In previous global financial crises, many companies upgraded their technical equipment and maintained steady growth. However, this time, the cotton price surge has left them struggling to respond. Most manufacturers hope that the turbulence in cotton prices will end soon, or else the industrial base built up over years in Guangdong’s denim sector could be undermined.
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