China’s textile production rises on fears of worsening trade tensions

According to research by Wood Mackenzie, Chinese textile producers are increasing production as fears grow that the trade war with the US will hurt exports of apparel and other textile products as soon as the fourth quarter of 2019.

Daily fabric transactions continue to be robust in China’s textile hub in Shaoxing city, well above 6 million to 9 million metres most days over June and July this year. The mid-year is traditionally seasonal lull period for the polyester and textile industries in China. Historically, Shaoxing city produces, on average, 4 million to 5 million metres during the annual lull.

Salmon Lee, head of polyesters at Wood Mackenzie, said: “Chinese producers think that exports are likely to be curtailed later in the year, so it is best to send off any exports now, thus the need to produce them earlier than usual.”

Polycondensation (a process to produce synthetic polymers for textiles) rates in China for the past three months have kept well above 86% of capacity and utilisation rates for polyester fibres are estimated to be 76-78% in the same period. Some highly competitive polyester producers maintained utilisation rates of 90% or above during the second quarter of 2019 and likely will maintain or increase utilisation in the third quarter.

Whether these measures could support the Chinese polyester sector, and, by extension, the textile industry, to circumvent any fallout from the trade war remains debatable. But the heightened monthly production figures for virgin fibres between April and June, at almost 3.4 million tonnes (Mt) each month, suggests there could be a sharp decline in production later in the year, as the effects of the trade war starts to set in.

Lee added: “For now, we remain cautious, keeping monthly virgin fibres output at just above 3.3 Mt between November and December. But a steeper decline cannot be ruled out.”

Following a trade truce announced at the G20 summit in Osaka late last month, global markets appeared optimistic. Prices of most products in the Chinese polyester chain market were higher for two consecutive days. Both the physical and futures markets, including e-trading platforms in China, record an almost across-the-board rally in feedstock pricing.

Lee said: “However, such optimism remains short-lived. Over the short term – one to two years - the negative impact seems manageable. But if the trade war becomes protracted, a total re-think or even re-alignment of strategy may be necessary.”