Linqing, a key player in Liaocheng’s traditional textile industry, has been significantly impacted by the recent volatility in cotton prices. Known as “China’s Cotton Textile Batik City†and a major textile production base in Shandong Province, Linqing is home to 85 large-scale textile enterprises, over 40,000 employees, 15,000 looms, and 2 million spindles. From January to October this year, these enterprises generated a total of 10.055 billion yuan in main business revenue, reflecting a 30.06% year-on-year increase. But how are such a massive industry and its companies coping with the sharp swings in cotton prices?
During an interview with a spinning company, Yang Jigang, vice general manager of Linqing Jinyuan Tianze Co., Ltd., explained that cotton prices had surged dramatically in September, rising by 100% within two months. However, the trend quickly turned volatile. On November 10, cotton prices hit a high of 33,720 yuan per ton, only to plunge sharply on the 11th and 12th, breaking the previous upward pattern. The spot market has since seen significant adjustments.
In the first half of the year, conditions were favorable for spinning companies. Han Weidong, director of the Trade Union of the Linqing Textile Industry Office, noted that cotton prices had doubled from 14,000 yuan per ton in 2009 to over 28,000 yuan per ton in 2010. Spinning companies typically maintain two months of inventory, allowing them to pass on rising costs to downstream industries. Some companies reported making three years’ worth of profits in just the first half of 2010—an outcome not seen in a decade. However, the second half of the year brought new challenges.
With the recent drop in cotton spot prices, many textile companies found themselves in a tough spot. A phenomenon known as “high-priced cotton, low-price cotton yarn†emerged, where customers preferred cheaper alternatives, making it hard for companies using expensive cotton to sell their products. This led to squeezed profits at the downstream level, with cost increases being absorbed by middlemen rather than passed on to consumers. As a result, the current rise in textile product prices is driven more by costs than by demand.
Qi Qi, general manager of Dongbu West Xinya, shared his concerns: “In 2009, we bought cotton at 2.95–3.15 yuan per meter, but now it's up to 6.1 yuan. Our export prices have risen by 20%, while our costs have jumped by 70%. Foreign buyers aren't happy and are asking us to lower our quotes.†This dilemma has forced some companies to shift focus from exports to domestic sales, using local profits to offset losses in international markets.
Li Hongyi, chief of the Foreign Trade Management Section at the Liaocheng Business Bureau, confirmed that the sharp rise in cotton prices has severely affected local textile companies. At the Canton Fair, cotton prices surged by over 1,000 yuan per ton in a single day. Exporters are caught between high costs and pressure to maintain competitiveness. Some companies have started selling domestically to balance their books.
At the start of the year, issues like exchange rates and labor shortages were top concerns, but the dramatic fluctuations in raw material prices have now become the most pressing challenge. Many companies are calling on the government to implement policies that stabilize prices, support businesses, and curb speculation.
Despite the challenges, Linqing’s textile companies are adapting. With China being the world’s largest cotton consumer and a self-sufficiency rate of 60%, local cotton farming has declined significantly. In Guanzhai Township, for example, only 4,000 acres of land were planted with cotton in 2010, down from 56,000 acres of arable land. To manage risks, companies are exploring new products, going global, and forming bank-enterprise partnerships.
Yang Jigang explained that his company has partnered with a bank to purchase 1,400 tons of cotton, stored in their warehouse. By buying from the bank’s reserves at market price, they reduce capital occupation and maintain stability. Additionally, shifting from natural fibers to chemical fibers—whose prices are more stable—is part of the strategy. New products require new equipment and new markets, but current operations remain at full capacity.
Looking ahead, Yang remains cautious. While he expects the cotton yarn market to remain strong, he believes the decline in raw material prices will continue. As a result, companies are adopting smaller, shorter-term orders and focusing on quick turnover to minimize risk. For Linqing’s textile industry, adaptability and innovation may be the keys to navigating the uncertain future.
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