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China’s wool industry discussed at Nanjing Wool Market Conference

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31st Nanjing Wool Market Conference was jointly hosted in Qufu, the hometown of Confucius, by China Wool Textile Association, China SDIC International Co., Ltd., Shandong Ruyi Group and Nanjing Wool Market in September.

 

Compared to previous years the mood was somewhat subdued. There is no doubt that the textile industry in China is going through difficult times. The slowdown in the Chinese economy, stringent environmental laws, an increase in energy and labour costs, high Merino wool prices, and of course the China US trade disputes have all contributed. But the biggest issue is that the consumer at retail, in China, is jittery and spooked by various government announcements including Chairman Xi’s belt tightening comments have had an impact on spending.

 

In an open discussion forum during the second day of the conference the managing director of one of the biggest spinning companies in China said that ‘in all my 35 years in the wool industry I have never seen anything as bad as this’. A major fabric manufacturer commented that ‘we currently have enough stock to supply our customers for the next 12 months without any new production’.

 

From feedback we have received, the companies most directly affected are those with a greater exposure to this Chinese domestic market, rather than to the export market. These companies are kept afloat by large uniform orders from government departments. Processors that export 50-60% of their production are not as badly affected.

 

Chris Wilcox, Chairman, Market Intelligence Committee, International Wool Textile Organization, briefed conference delegates: ‘What happened in these 12 months? A year ago, the strong demand of Merino wool and reducing supply caused by drought in Australia push the price to historical high. The super wool cycle from 2016 to 2019 peaked in 2018, and now it is suffering in a downward trend. Rare strong demand and ultra-low Merino wool supply in same period created such a high price which is also the largest and longest-lasting supercycle of the five wool growth cycles experienced in the past 30 years.

Now, the sharply declined demand make the whole wool industry in a tough period. The global slowdown of economic growth, the decline of retail sales in some major markets of wool garments and the implementation of the high tariff imposed by the United States on apparel and textile products from China, have resulted the increasing inventory in all sectors of wool supply chain and sharply decreasing the wool demand as a result. In some regions including New South Wales, the main wool producer, the drought will continue. We estimate the wool production will keep dropping in 2019/20 to hit a lowest supply since 1995 and take the Marino wool price down as well.

According to the annual survey of the global wool textile industry conducted by the International Wool Textile Organization in March this year, unlike the strong trend in 2018, all sectors of the wool textile industry have shown declination this year. The declining export volume of major wool-producing countries tells the weaken of demand for wool raw materials. The imports of many wool-using countries decreased more than 10%.’

Chris Wilcox also said: ‘According to all the wool cycles we experienced there will always be a bottom, and we believe the bottom of this time may come earlier than expect. Currently, the price of Marino wool has been attractive to the main users, such as knitting, and they will gradually return. The recovery may be a long term, caused by the negative impact from the global environment, but it certainly will come.

 

According to Mr. Sun Huaibin (Vice-president, China National Textile and Apparel Council)’Currently, our Chinese wool industry is experiencing the revolution of structural adjustment, technology, fashion and environmental-friendly are turning into the mainstream of industrial development. During the process, high quality enterprises are leading the changing process and already achieve some results. While the normal companies just realize that and some company have no ability to do transforming. Therefore, the insufficient economic engine given by industrial transforming still unable to against the downward pressure can be a reason to explain the long-term economic downturn.

 

We can also find reason from domestic and international environment and the structural adjustment of the industry itself. Although we are facing some difficulties and challenges, we still have our faith on future development.

 

Firstly, we will keep focusing on the transforming of technology, fashion and environmental-friendly in our industry. Secondly, we need to take high-quality development as the guiding ideology and strengthen the construction of industrial chain in an all-round way. Thirdly, the domestic market with huge potential need further development. Furthermore, the should also actively participant in ‘the belt and the road’ strategy which allows us to have bigger development region in global and international market and cooperate with foreign enterprises’.

 

Ms. Yang Xiaoxiong (President, China SDIC International Trade Nanjing Co) and Chair at NWM Conference concluded:  ‘Wool market, after four years raise in price, unprecedentedly hitting historical highs again and again, finally dropped down sharply and deeply.

 

This year, the intricate economic environment has made the wool people pay enough ‘tuition fees’. The ups and downs of wool price reflect the supply and demand. The industry always develops cyclically and market rise and fall is also an inevitable principle.

 

Maintaining faith and rebuilding the confidence, we keep moving on. Believe the dawn is coming soon.

 

When Ms. Yang Xiaoxiong talked about double-faced fabric and fake fur, she summarized the development of double-faced fabric into four seasons. 2019 is the recession period of double-faced fabric. However, after three years development, fake fur has been acknowledged and accepted by consumers and become the most shining point. The market started earlier than usual this year with more manufacturers involved, using different kind of wool to make a variety of new products.

 

‘Considering the negative environment both home and abroad, the whole wool industry faced the situation of lack of direction, lack of orders, lack of capital and lack of confidence, which is difficult to change in a short period.‘

 

She suggested first of all to keep prudent attitude, pay enough attention to the games at national level, the price fluctuations of bulk commodities. Secondly, we should have clear mind, allocating for domestic market, strengthening products research to digest inventory and doing purchase as per orders. Thirdly, keep a close eye on governmental encouraging policy and guidance to find potential market. Lastly is to keep faith, working together to conquer the difficulties’, she said.

 

China has the biggest consumer market in the world. Between 70-80% of all wool is processed in China. Of this, at least 45-55% stays in China, and is used in products for domestic consumption. When this consumer reduces spending, the whole chain feels the pinch.   This has hit some big clothing brands as they struggle to make a profit and secure finance.

Although analysts say Chinese textile and clothing makers are at low risk from the looming trade war between China and the US, given that they export so little to America compared to other sectors, US brands are starting to diversify their sourcing. A survey of 34 executives from leading US fashion companies last year found that for the first time fewer US brands were looking to China for products, even though the country remains the top sourcing destination for the industry worldwide.

“US fashion companies are not ‘putting all their eggs in one basket’, and the most common sourcing model is shifting from ‘China plus many’ to ‘China plus Vietnam plus many,’” according to the US Fashion Industry Association, which conducted the survey. For many US brands, a third of their products now come from China, a third from Vietnam, and the rest from other countries, the survey found.

Most Chinese executives we spoke to at NWM conference do not believe that the China US trade dispute will be sorted out soon. At an agreement last week between the US and China, all that was agreed to was an undertaking from Trump that no new tariffs would be introduced. But as many tariffs are still in place this will do little to change the present situation.

 

The Chinese government will continue to introduce stimulus into its economy to balance the disadvantage that Chinese manufacturers are currently experiencing. But so far, this stimulus has made little impact with the consumer in China and until these consumers open their wallets, again, there is little evidence that the situation will change.

 

But of course China is still growing at 6%, still an enviable position compared to much of the rest of the developed world. And the situation can change pretty quickly if the trade disputes and Brexit can be resolved sooner rather than later.

 

Victor Chesky

Editor

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