The RMB exchange rate against the US dollar has continued to depreciate recently, returning to the “6.5 era.” On April 25, the onshore and offshore RMB exchange rates against the U.S. dollar fell below 6.55 and 6.59 respectively during intraday trading, with both depreciations exceeding 600 basis points. The onshore RMB closed at 6.5544 against the US dollar, down 669 basis points from the previous trading day and hitting a new low since early April 2021.
The domestic textile industry accounts for a large proportion of exports, and the depreciation of the RMB is beneficial to industry exports. The most obvious, from the direct effect point of view, because textile exports are generally settled in US dollars, the lower the exchange rate of RMB against the US dollar, the more money the textile foreign trade companies will earn while the price of payment remains unchanged. .
Textile companies’ profits expand
For foreign traders, most of them adopt the strategy of “settling foreign exchange at low prices”. Since the beginning of this year, the central parity rate of the RMB against the US dollar has been fluctuating in the range of 6.30-6.38, which is basically stable. If this year’s settlement is based on the average price of 6.35, which is now 6.5, an increase of 0.15 points, then 1 million US dollars will be 150,000 yuan more when settling foreign exchange. Therefore, according to the current exchange rate of around 6.5, the profits of textile workers have undoubtedly expanded invisibly.
In the short term, the exchange rate of RMB against the US dollar has dropped, which has directly affected the foreign exchange settlement profits of textile foreign trade companies. However, the changing exchange rate makes it difficult to accurately grasp the next trend, especially since there is a long time lag between the quotation and order operation of textile foreign trade. The decline in the exchange rate is negative for the orders currently quoted. For example, the fabric price of 10 yuan/meter, quoted at the previous exchange rate of 6.35, was US$1.58/meter. Now quoted at the exchange rate of 6.5, it is only US$1.53/meter, and the price is US$0.05/meter lower. After the exchange rate fluctuates, it is also very difficult to negotiate with foreign businessmen for price adjustments.
Textile enterprises operate at low profits
Fluctuations in exchange rates also have mixed benefits for businesses. At the same time, some companies said that no matter what the exchange rate trend is, US dollar orders and the exchange rate have nothing to do with them. As terminal demand continues to shrink due to the epidemic, all textile industry chains are under greater inventory pressure than in the past. In terms of weaving inventory, the average inventory of gray fabrics in weaving enterprises in Jiangsu and Zhejiang has reached 35.8 days. Under the pressure of high inventory, textile companies have listed clearing inventory and revitalizing funds as their top priority. Therefore, some market goods in the textile market now have almost no profit or even loss. Although order goods have a certain profit, the overall profit situation is not good.
Indeed, receiving an order is where everything begins. But what the editor wants to say is that the lower exchange rate is beneficial to exports. Just like the above example, the fabric quotation is low and the advantage is back. Some of the orders that have flowed out may be returned, and some of the orders that were originally due to excessive prices will be returned. Orders that have been delayed for any reason will also begin to be placed. Therefore, to a certain extent, a lower exchange rate can drive the placement of orders, which is still closely related to enterprises.
In addition, stimulated by the good news about the lower RMB exchange rate, the textile and apparel sector rose strongly on the 22nd. Henghui Security, Rongmei Shares, Wanshili, Huafang Shares, Shengtai Group, Aimu Shares, True Love Beauty, Taimus, Fu Many stocks such as Chun Dian Weaving, Langsha Shares, and Red Dragonfly have reached daily limit. Among them, Shengtai Group has reached daily limit for three consecutive trading days, and Rongmei Shares, Longtou Shares, Taimus, etc. have reached daily limit for two consecutive trading days.
Although the good times did not last long, on April 25, one-third of the stocks in the textile and apparel sector fell by the limit. Among them, ST Zhongqian shares and Rongmei shares fell by 20%, and 20 stocks including Peacebird, Songlisi, Jiansheng Group, and Sanfu Outdoor fell by the limit. A drop of about 10%. However, the depreciation of the RMB will help enhance the competitiveness of export products of enterprises in the sector, allowing enterprises to obtain more orders and drive export growth. When clothing companies get more orders, they will bring orders to the entire industry chain and inject more fresh vitality.
According to statistics from the General Administration of Customs, national textile and apparel exports in the first quarter of this year were US$65.1 billion, a year-on-year increase of 44%. An increase of 15.6% compared with the first quarter of 2019. The valuation of the textile and apparel industry has also hit bottom. Some institutions say that domestic leaders have returned to pre-epidemic levels in 2019, and there is room for upward recovery in the future.
Currently, �Although the textile industry has been sluggish due to the epidemic, while the epidemic is improving, various good news are also stimulating the recovery of the market. The decline in the exchange rate and the strong rise in the apparel sector have paved a new way for textile companies to receive subsequent orders.
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