A New Environment for Global Textile Companies
January 13, 2014 With the global financial and economic crisis hitting the world and resulting in a negative growth rate of -0.6% in 2009, the global economy has undergone a rollercoaster of a ride. World output rose by 5.1% in 2010 but slowed to 3.8% in 2011 and to 3.2% in 2012. The IMF is forecasting a further slowdown to 2.9% for 2013 but is expecting global growth to pick up again in 2014 (3.6%).
Compared to the pre-crisis level growth level of 5.2% in 2007, the global economy has still not found a new balance of sustainable growth. While the advanced economies of the United States, Japan and the euro area are recovering slowly, emerging and developing economies are growing below the pre-crisis years. Nevertheless, the emerging market economies still account for the bulk of global growth. The main reason for this sluggish global growth is a general uncertainty about the speed and strength of the global recovery. Strong and fast expansionary fiscal and monetary policies have been applied in direct response to the crisis thus preventing a global economic meltdown that would have resulted in a long global depression as experienced in the 1930s.
Nevertheless, while fiscal stimuli have helped overcome the crisis, they also left governments with significantly higher level of debts that are now reducing their ability to react in similar ways to possible downside risks.
Actually, most governments around the world are facing the challenge of starting a credible process of long-term consolidation of their public finances while at the same time not risking to slow economic growth in the short-term. While the world economy is still in a sort of recovery mode, exposed to various downside risks like the looming banking and euro crisis in Europe, political stalemate in the United States, the ending of the Federal Reserve’s ultra-expansionary monetary policy or the lower-than-expected economic growth in emerging market economies – especially in Brazil, China and India – other developments can be observed that could support a stronger recovery in the future. One important factor is certainly the shale gas revolution that is taking place in the United States and elsewhere. This has led to a significant reduction of gas prices, which in turn led many economists to the conclusion that the United States is likely to see a certain level of re-industrialization in the coming years.
A Profit Squeeze
Subdued global economic growth is a huge challenge for a global textile industry that is finding it very difficult to remain profitable. Retailers around the world are putting a lot of pressure on textile manufacturers by demanding lower prices and more services. Meanwhile, the textile industry is struggling with higher and/or volatile input prices.
In the last few years, volatile fiber prices, especially cotton, have caused headaches around the world. From around 80 cents/lb in January 2010, cotton prices soared to around $2.40/lb in March 2011 – an increase of 200%!
By December 2011, cotton prices had plummeted to around $1, and have been hovering between 80 cents and $1/lb ever since.
One important factor for cotton prices’ volatility are China’s reserve and import policies. In the past two years, when global cotton production was higher than global cotton consumption, most of the surplus on the world market was imported by China. This contributed to relatively high international cotton prices. According to the International Cotton Advisory Committee, ending cotton stocks in China are expected to be 11-12 million tons. How China will deal with such an enormous amount of cotton in its reserve will go a long way toward determining future cotton prices.
The global textile industry certainly prefers less uncertainty and volatility about such an important raw material. The fact that textile companies around the globe are caught between non-rising retail prices and increasing input prices is a huge challenge to the entire industry. As a consequence, many textile companies have struggled and are struggling to stay in business or were forced to either merge or even close down altogether.
One way to escape this squeeze and to become more competitive is to increase efficiency and productivity. Investing in new textile machinery with a higher degree of automation (less labor) and more efficient process (less energy and water) is certainly an option.
No Stability in Machinery, Either
According to ITMF’s International Textile Machinery Shipment Statistics (ITMSS), shipments of new machines plummeted in 2008 and 2009 from their record levels in 2007 but picked up again in 2010 and 2011.
Shipments of short-staple spindles, for example, dropped from 12.8 million spindles in 2007 to only 8.6 million in 2008 and 7.1 million in 2009. In 2010 and 2011, however, shipments jumped to 12.5 million and 14.3 million, respectively, before dropping back to 10.5 million in 2012.
In other words, shipments of short-staple spindles in 2009 were 45% lower than in 2007, but were 100% higher in 2011. In 2012, shipments were 27% lower than in 2011. Like the volatility in cotton prices, such volatility in shipments of short-staple spindles is unprecedented. In 2013, shipments of textile machines are expected to pick up again alongside an improved economic outlook for 2014. The need for a higher degree of automation and more energy- and water-efficient machines is especially high in countries with rising labor and energy and water costs – China, India, Vietnam, Indonesia or Pakistan, just to name a few.
Quantity and quality are also driving new machinery investing. Fast-growing middle classes in large emerging market economies like Brazil, China, India, Indonesia and Turkey are requiring investments in machinery that are able to deliver products with better quality and in larger numbers.
Therefore, it can be expected that in 2013 textile machinery shipments will be somewhat higher than those in 2012. If the global economy finds a way to more stable growth rates, shipments of textile machinery in 2014 should be even higher.
The underlying conditions for the textile industry, and therefore also for the textile machinery industry, are actually very good:
- the global population is expected to grow in the next decade,
- global GDP is growing year by year, and
- per-capita GDP is increasing significantly.
This means that more people will have the means to spend more money on textiles. In order to benefit from this optimistic outlook in a profitable way, each textile company constantly needs to improve its competitiveness by keeping costs under control and by developing new products and markets.
ITMF: A Unique Networking Platform
The International Textile Manufacturers Federation (ITMF) offers a unique platform for the international textile value chain – from fiber to retail – by bringing together stakeholders from all segments of the industry, offering an international platform for the exchange of best practices and experiences and for discussions with experts from the industry.
At its annual conferences – 2010 in Sao Paulo,Brazil; 2011 in Barcelona, Spain; 2012 in Hanoi, Vietnam; 2013 in Bregenz, Austria and 2014 in Beijing/China – ITMF members discuss the challenges and opportunities of the global textile industry.
In today’s globalized world, it is indispensable to have an international platform for discussions that help to better analyze and understand the economic dynamism within and outside the international textile value chain.
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