It is now the end of May, June is about to come, and half a year will pass in the blink of an eye. Since the beginning of this year, affected by unfavorable factors such as repeated epidemics and rising structural costs, the downward pressure on the textile industry has increased, and corporate profits have declined.
“What is the biggest difficulty encountered this year?” Regarding this question, I think 9 out of 10 bosses will say that the biggest problem is the lack of money. Since February, the epidemic has spread frequently in some areas of the country, which has had a great impact on the production and operation of textile enterprises. Under this influence, the number of orders received by enterprises has decreased, inventory has increased, and the debt cycle has been extended, resulting in a situation of difficulty in capital turnover.
Data from the Ministry of Industry and Information Technology: From January to April, the profits of industrial enterprises above designated size nationwide increased by 3.5% year-on-year, and the growth rate dropped by 5.0 percentage points from January to March. Among them, manufacturing profits fell by 8.3%, a decline that expanded by 6.2 percentage points from January to March.
Recently, the China Industrial Textiles Industry Association conducted a survey on the industry. Judging from the economic benefits of the interviewed companies from January to April, the total profits of 55.93% of companies fell by more than 10% compared with the same period last year, and the total profits of 26.27% of companies were basically at the same level. It was flat, with 17.80% of total corporate profits rising by more than 10%.
Changes in operating income and total profits of the interviewed companies
Data source: China Industrial Textiles Industry Association
The above data all show that the profits of industry companies from January to April decreased compared with the same period last year. Recent analysis of the orders received by downstream trading companies shows that the conditions in the two major markets of domestic and foreign trade have improved, but the profit pressure in most links of the industrial chain is still high. Although the number of orders has increased significantly, the company’s profits from gray fabrics and finished products have also fallen.
01Profits of textile companies dropped by 5-6%
An owner of a weaving company said: “We mainly produce high-quality pongee, most of which are export orders. We can make a huge profit of 0.1 yuan/meter at most. Those who sell market goods really have no profit.”
According to the person in charge of a foreign trade company, the profit this year is only 2%-5%, and it could reach about 7%-8% last year.
While the market conditions have recovered, the profitability of companies has not recovered as expected, and most companies are still on the verge of losing money. On the one hand, due to the continuous accumulation of inventory due to the epidemic in the early stage, manufacturers are currently mainly destocking, prices are loose, and buyers continue to lower prices, and the final transaction price; on the other hand, upstream raw materials continue to rise with the international crude oil, and various costs have increased. is rising, causing the total cost to be close to the selling price; thirdly, even if the orders are paid back, it is very slow, and various deductions will occur during the payment, leading to a further decline in profits.
02The debt period is doubled and extended
According to a business owner, most current order contracts require three months for payment, but customers have been defaulting on payment, and it basically takes six months to receive payment. They will also find various reasons to ask for deductions when returning the money, so the profit point calculated from one order is very low. In addition, the payment time is too long and the financial pressure is relatively high. If there is an improvement in the second half of the year, it may be difficult to cope with the increase in orders.
Weaving manufacturers also face the problem of credit sales. A boss also said that the account period is usually 1-2 months, and most of the gray fabric inventory in the warehouse is more than 1 month, so that most of the funds are outside and can really circulate. The funds are very small. Therefore, financial pressure can only be alleviated through cash purchase preferential policies, but profits will naturally be affected.
It can be seen that due to the impact of the epidemic, the payment collection cycle of traders this year has doubled compared with previous years. Regarding the textile market in 2022, many traders have repeatedly extended the payment cycle for original old customers. Now the general payment cycle in the domestic trade market is 3-6 months, and some even last year’s balance has not been settled. It can be seen that in an environment of overcapacity and shrinking demand, traders can only expand the proportion of credit sales again in order to expand sales channels or retain original customers, thereby increasing their own receivables.
Poor market conditions lead to slow return of funds, which has become the norm in the industry. “Reducing inventory and revitalizing cash flow” has become a top priority for some textile companies. From the perspective of profit levels, the current profits of gray fabrics are low. The main problem is the lack of orders and high financial pressure.
What’s even more frightening is that international crude oil prices are still rising, which has led to the rise of most raw materials, which may cause unbearable pain for textile companies. The arrival of June means the arrival of the traditional off-season. When costs rise during the off-season, how many companies can successfully survive this difficulty?
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