Textile Mills Are Hurting

A recent survey of Chinese textile mills in Hebei and Henan by our China joint venture partner, CN Cotton, confirms the industry is still hurting and many mills in these two provinces are not only idling production but also shutting down until raw material prices become cheaper. According to the survey, finished product stocks are high--in some cases more than three months--while raw materials are considerably reduced. Many of the mills in Henan and Hebei have been buying lint hand to mouth for months. Downstream demand remains in the doldrums and cash flow is tight with very high account receivables at many of the mills. In both provinces, T328, the standard grade, is equal to 12,900 yuan/ton delivered. The landed the mill price is about 1000 to 1500 yuan/ton above what mills believe they could pay and still make a profit. State owned textile mills are further burdened by the mandate to not layoff staff and keep the mill running. As noted in a previous entry, the additional 1 percent to the VAT rebate, now at 16 percent, has for the most part gone into the pockets of buyers and retailers. One mill said the textile VAT export rebate really keeps Chinese products cheap and offers no real value to a mill. As reported in the last entry, mills are become louder about the government immediately releasing reserve stocks or issuing additional import quota.