Recently, the textile market has entered the off-season, the market situation is not very good, and there are not many hot events in the industry. The editor took advantage of this time to read some economics books to recharge himself.
It just so happens that I recently saw a concept about liquidity, and I feel that this concept can better explain some phenomena that occur in the textile market. For example, why is silk more valuable than gray cloth, and gray cloth more valuable than fabric? Why are textile companies sometimes willing to operate at full capacity even when business is not good?
Liquidity is a term in the financial field with many different meanings. In a narrow sense, if there are many buyers and sellers in a market, then the liquidity of the market will be very high, and assets will be easier to liquidate. The price will become higher, otherwise the price will become lower.
cloth equals money
In ancient times, as a daily necessity, cloth could be used as money for a long time. Therefore, when watching ancient TV dramas and receiving rewards from the emperor, there would be pieces of silk XX etc. The line is that because cloth is highly liquid, it is very easy to cash out. Some dynasties even used cloth directly to make banknotes, which were called “cloth coins”.
In the decades after the founding of New China, the level of productivity had not yet improved. Cloth, as an indispensable commodity in people’s daily lives, had its own “cloth ticket”.
After the reform and opening up, especially in recent years, productivity levels have increased significantly, and cloth has lost the scarcity it had at that time. Of course, for Boss Bu, in a sense, cloth is still equal to money.
Liquidity injection and excess liquidity
When we read economic-related news, we often hear the term “injecting liquidity”, which is usually to enhance market vitality through policy means. For example, reductions in reserve requirements and interest rates in the financial sector, and reductions in down payment ratios and interest rate discounts in the real estate sector.
The textile industry has also encountered similar things, the biggest impact of which is environmental protection. In the past two years, environmental protection has become more and more strict, and companies have been forced to reduce their operations from time to time. Then there is speculation in the market, and sometimes the price of cloth goes up. In terms of polyester yarn, polyester factories sometimes increase market liquidity through “meetings” or promotions.
Of course, when there is excess liquidity, the market will be disordered. 2018 The rectification of water-jet looms in Jiangsu and Zhejiang was the largest excess liquidity in recent years. I believe that the prices of conventional fabrics at that time are fresh in the memory of many textile people. But what followed was the market depression in 2019. There was no new crown epidemic at that time, but since 6At the beginning of March, a large number of gray fabrics were sold on the market.
illiquidity
The main problem facing textile companies now is insufficient liquidity, which in “Chinese” terms means insufficient trading volume. Anyone who does business knows that money can only be of maximum value when it circulates, so sometimes it is better to keep the fabrics in stock than to keep the machine running. However, the current economic environment is not good, and both the liquidity of funds and the liquidity of produced cloth are insufficient, which has led to the decline in cloth prices.
Cloth’s Liquidity “Inflation”
In previous years, even in the off-season, textile companies would operate at full capacity to produce some regular products. It is precisely because these conventional products have large market demand, wide range of uses and high liquidity. Even if you can’t sell it for a while, the discount will not be obvious when you want to cash it out.
But the current situation in the market is that weaving companies are continuously producing cloth, but the end demand is shrinking day by day, and there is a surplus of cloth in the market. If cloth is regarded as a currency, this currency will fall into “inflation.” . At this time, if you want to sell goods, you can only think about profit, and occasionally it is even lower than the cost price. What’s even more frightening is that due to the impact of the new crown epidemic, the lack of liquidity may not be temporary, but will last for a long time, which gives bosses a headache.
In addition, there is also a situation that the higher the upstream, the more expensive the raw materials are, and the price of processed goods is falling. This is also due to liquidity issues. Crude oil, the source of the chemical industry, is needed everywhere. Oil-producing countries also restrict production capacity, which suddenly creates a liquidity shortage. Every time it is processed, the liquidity of the commodity weakens, making it more difficult to realize cash in the market. . And in times of economic downturn, being easily liquidated is an important value in itself. During times of famine in ancient times, it was not unheard of for one tael of gold to buy a steamed bun.
Increase commodity liquidity
The price of cloth cannot go up because of lack of liquidity. But now cloth is in an “inflationary” situation and demand is insufficient, so it is difficult to increase liquidity. At this time, perhaps what textile companies can do is to reduce the startup rate. In the short term, the current market is not good. Textile companies have insufficient liquidity and cannot sell cloth. The higher the startup rate, the greater the financial pressure on companies. In the long term, my country’s textile companies are in a long-term vicious competition. Among them, production capacity is getting bigger and bigger, but profits are getting lower and lower by our own people. This will definitely cause liquidity tension in the long run and make it difficult to create a virtuous cycle of business environment.
</p
