Analysis on China"s denim production and marketing situation in 2006

Domestic denim market situation is generally weak in 2006. Comparing to the same period a year earlier, denim market lacks enough rising momentum, corporation earnings decrease, and export orders decline seriously.

There are several main reasons behind this picture:

First, export competitiveness is weakened, industrial profits are further reduced due to the high price of raw materials, textile export quota limitations, continued appreciation of Renminbi and other factors;

Second, market demand is poor due to the affection of seasonal denim marketing periods;

Third, oversupply situation of the entire denim market has not changed.

Analysis as follows:

First, overall market sales slump, denim market lacks enough rising momentum.

Affected by the rising market demand, from Jan-May, domestic denim production and marketing situation was generally better. Since mid and late May, domestic denim market gradually declined, featured in receiving scattered orders with small quantity, and less single big orders.

Entering July, domestic denim market reached a bottom, market delivery slowed, production situation looked more severe, it was quite a common phenomenon for weaving enterprises to suspend production and limit output. In main producing areas, operation rate of weaving manufacturers was only about 40-50 percent. Operation rate of large and medium-sized enterprises generally dropped to less than 70 percent.

In late August, due to the rebound of seasonal demand, purchasing volume from downstream market increased, domestic denim market orders increased, and the market saw a sign of startup.

Coming into September, the market obviously improved, denim market looked booming, exports were primarily went to Hong Kong and Southeast Asian markets. Exports to Europe and the United States were in a resuming state. Operation rate of domestic weavers rose to more than 80 percent, large and medium-sized enterprises were operating at full capacity.

In October, with the accelerated appreciation of Renminbi, the obvious effect of downward textile export tax rebate, more buyers and sellers preferred to stay a wait-and-see mood, manufacturers in Shandong Zibo, Zaozhuang and Zhongshan, Guangdong, Xintang and other areas lost orders. The monthly sales of many enterprises dropped 50 percent, the denim market slipped into a state of "worry from internal and trouble from external".

Second, export market was not active, main business trade retained in domestic market

During the mid-1990s, Chinese denim market reached its peak. Since then for several years, denim production in China continued to drop, export market shrank, at present, China's domestic market has become a major consumer market for denim industry.

According to statistics, in 1995, China's denim export volume registered 757 million meters, accounting for 74.5 percent of the national total denim production.

Last year (2005) China's export volume fell to 481 million meters, direct exports accounted for only about one-fifth of the country's total output.

The first three quarters of this year, China exported 413 million meters of denim, a year-on-year increase of 13.9 percent, but the proportion of exports was still much lower than that in 2002. The average export price of cotton denim was US $1.71 per meter, at the same level of last year. Blended cotton denim price averaged at US $1.30 per meter, a year-on-year decrease of 14.5 percent.

Because of the large scale of Chinas denim production, the production can basically meet the domestic demand, therefore import volume is relatively small. Denim imports are mainly in processing trade.

Cotton denim imports were about 111 million meters from January to September 2006, average unit price at US $1.34 per meter. Blended cotton denim imports showed 5.84 million meters, average price at US $2.91 per meter, representing different growth rates from the same period last year. The annual total imports are expected to approach 155 million meters.

Third, denim yarn breaks through the single pattern of open-end yarn (OE yarn)

The proportion of ring spun yarn and fancy yarn increases

Before 2000, more than 80-90 percent of Chinas denim yarn was open-end yarn (OE). The proportion of Ring spun yarn in denim production was small, less than 10 percent. The share of fancy yarn used in denim was even smaller.

According to statistics, in 1997, China denim industry consumed 662,000 tons of OE yarn, accounting for 93.5 percent of the national total OE yarn output of 708,100 tons. However, since 2000, China's denim production saw a gratifying change in yarn, which broke the past single pattern of relying on OE yarn. Recently the proportion of ring spun yarn and fancy yarn increases rapidly. Currently denim made from fancy yarn is more popular.

(1), For air spinning yarn (OE yarn): the main raw material are scraps, noil or low-grade cotton, which is mostly used in coarse yarn spinning. The open-end yarn specifications consumed by denim production are basically OE7S, OE10S, OE12S, OE16S, following are OE20S, OE21S, OE5.5S, OE8S bamboo, OE10S bamboo and other products in other specifications, mostly used for thick-woven cotton denim, elastic denim and bamboo denim.

(2), For ring spun yarn: The main raw materials are middle and the high-grade cotton, mostly used in 100% cotton yarn, combed yarn, Ramie-Cotton yarn, polyester-cotton yarn and other blended yarn. Regular products are 7S,10S,12S,16S,21S/2 and JC32/2.

Fourth, new fibers show an increasing trend, which gives a new definition to denim

Domestic denim market is divided into three species and dominated by ordinary cotton denim, bamboo denim and stretch denim. Due to export quotas, the sales of ramie /cotton denim suffers a decline this year.

Yarn products are mainly pure cotton yarn, slub yarn and elastic yarn, followed by ramie/ cotton yarn, gold and silver thread, polyester filament yarn, other species such as viscose yarn, silk and cotton yarn, polypropylene filament, wool and other products, which take a non-impressive share. Though the overall proportion of new fiber is not high, but it has shown an increasing trend.

The two features of new products are as follows:

(1) Various new fabrics are developed from functional fibers and the natural fibers, such as the use of Modal, Tencel fibers as cellulose, moisture absorbing fiber, wool, silk, soybean fiber and etc. which are applicable to production of interwoven fabrics;

(2) Interwoven fabrics by polyester filament / soy protein fiber yarn and cotton / soybean fiber denim have better aspect of overhanging similar to shiny silk fabrics, smooth hand-feeling, soft and suitable to making garment.

The main new specifications of denim are:

Bamboo fiber denim,
Cotton / bamboo fiber denim 58"/60" 10~32/2 80~50 1/3 9.0OZ,
Cotton/ aerated yarn denim 10~200D/2 80~50 1/3 10.0OZ,
Tencel/ cotton denim 40/2~JC32/2 106~46 7.0OZ,
Pure tencel denim 40/2~40/2 106~60 7.0OZC
DuPont Coolmax functional fiber demin,
T-400 texturized fiber denim,
Health care fiber (infrared, UV, antibacterial scent),
Bionic fibers (proteins, chitin),
High functional fibers (carbon fiber, high-shrinkage, smell, etc.), Abnormal style fibers,
Intelligent functional fibers and other fibers,
New fibers are widely used and give a new definition to denim.

Fifth, outlook of the future development of denim

Huge potential lies in home textiles sector

In 2002,Chinafs denim market boomed both in production and sales, but in the successive years of 2003 and 2004, the market suffered huge losses, and lowly recovered in 2005 and 2006.

1, The main difficulties:

cotton and yarn are basic materials of denim production, which account for 70 percent of production costs. But in recent years, the shortfall of domestic cotton expanded, the instability of cotton market has a great impact on denim industry. In addition, the floating tax policy greatly affects low-grade cotton imports, which significantly increases the raw materials cost of denim production.

Foreign manufacturers use ring spun yarn in denim production in order to consume short cotton fiber and noil, while in China, OE yarn still takes a dominant position in denim production, and such a situation will remain for quite a long time, which cause denim with different quality and weakens its competitiveness in international market.

Chinafs labor cost has been challenged by India, Pakistan, Vietnam and other countries, along with lacking brands and less investment in brand creation, the future development of Chinafs denim industry is therefore restricted.

2, Development trends:

Currently, the denim diversification is mainly in raw materials and finishing. Denim yarns are shifted from OE yarn to ring spun yarn, slub yarn, fancy yarn and other yarns. Finishing mainly features in color changes and functional finishing.

However, the overwhelming majority of domestic denim is restricted to the production of denim garment, mainly for the production of jeans. In the international market, especially the European and American markets, denim has been widely used for sheets, pillows, curtains and other household articles. The proportion of non-garment denim should be increased. In domestic denim market, the great potential of home textiles could be explored.

ctei.gov.cn, dated Dec 28