Singapore (Platts)--7Feb2013/550 am EST/1050 GMT

China's textile and garment exports fell to its second lowest level in 20 years in 2012, growing a mere 3% year on year to $260 billion, data released by the the National Bureau of Statistics on January 29 showed.

The lowest year-on-year growth in textile and garment exports was in 2009 in the wake of the financial crisis, when they fell to $167 billion, down 10.1% from 2008, according to data from the General Administration of Customs.

Falling exports from the world's biggest textiles and garment exporter tend to have a huge impact on its purified terephthalic acid industry as PTA is a building block for polyester, which is used to manufacture textiles along with natural materials.

Things are not looking too good on the export front for 2013 either, according to Deputy Director of China National Textile and Apparel Council Gao Yong, who cited sluggish demand, rising production costs and high cotton prices for the bleak outlook, state-owned People's Daily reported Thursday.

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Domestic cotton, the main raw material for the textile industry, costs Yuan 19,000/mt ($3,025), which is Yuan 6,000/mt or 46% higher than imported cotton, the China Daily said in a Wednesday report. Labor costs are also rising as the worker pool shrinks as a result of China's longstanding one-child policy.

A shortage of workers means companies have to shell out more wages. Meanwhile, under China's 12th Five Year Plan, the average annual growth rate for minimum wage will be more than 13% between 2011 and 2015. This is on top of the 12.5% annual minimum wage increase seen between 2005 and 2010.

China's domestic consumption of textiles and garments rose 18.2% between January and November 2012, far outpacing retail consumption, Gao said.

Despite this, the value of China's garment stocks hit an all-time high of Yuan 38.2 billion last year, according to reports from the country's national garment association CNGA. Based on the inventory data from 22 listed clothing companies, there will be sufficient clothes for every individual in China for three years even if the entire clothing industry comes to a halt, the association said.

China's market share of the global textile market declined in 2012. In the major import markets of the European Union and Japan, Chinese exports accounted for 73% and 40%, respectively, down 1.8% and 1.1% from 2011, according to the China National Textile and Apparel Council.

FAST FASHION CHANGES TEST LOYALTIES

China's traditional textile and garment buyers are changing loyalties, according to market sources. Germany, China's largest European buyer, usually imports a third of its textile and clothing requirements from the Asian manufacturing giant. In 2012, Germany imported 10% less year on year, valued at just Eur7.5 billion ($9.75 billion), Die Welt newspaper reported earlier this week.

It quoted the National Association of German Textile Retailers to say that one reason for this drop in imports was a change in shoppers' fashion tastes. This necessitated an almost last-minute need to switch from dull to bright colors, which Chinese manufacturers were not able to do, the association said.

Industry sources also said that many buyers were moving from China to South American countries because of lower freight rates and faster turnaround time for orders.

Earlier, buyers could wait two to three months for readymade garments to hit the shelves. But with fashion changing at a faster pace, goods now need to reach the stores in less than a month. This makes China uncompetitive as freight from the country to Europe takes at least eight weeks, while the voyage from South America takes half the time, sources said.

Another new trend is the switch to other Asian countries such as Bangladesh, Cambodia and Vietnam, which can offer a cost advantage, Gerd Oliver Seidensticker, president of industry association German Fashion, told Die Welt.

Bangladesh, described by the World Trade Organisation as the world's second biggest garment exporter, has an advantage through its status as a least developed country. This exempts it from import duties and quotas in various countries, especially the US and the European Union. Add cheap cotton and labor costs, and it is not surprising that Bangladesh is attracting investments from Chinese and Indian garment manufacturers.

PTA SUFFERS IN THE CHANGING SCENARIO

When PTA production margins were treading all-time highs in 2010, producers in China launched a host of new projects. PTA production capacity rose to 26 million mt/year in 2012 as a result. Of this, 10.2 million mt was new capacity that started up in 2012.

By 2014, China's PTA production capacity is projected to increase by another 12 million mt/year or 46% from 2012.

PTA producers saw production margins fall from a high of $120/mt in 2010 to minus $55/mt in 2012, Platts data showed. Competition for limited PTA feedstock paraxylene drove PX prices up while a supply glut kept PTA prices down. Between 2010 and 2012, PX spot price surged $457/mt or 43% while PTA price rose just $125/mt or 13%, according to Platts data.

On Thursday, PX closed at $1,701.50/mt CFR Taiwan/China while PTA settled at $1,205/mt CFR China. Given a PX conversion factor of 0.66 and a conversion cost of $150/mt, the breakeven for PTA makers is $1,273/mt.

--Chua Sok Peng, sok_peng_chua@platts.com
--Edited by E Shailaja Nair, shailaja_nair@platts.com

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