Recently in Moments and WeChat groups, the editor can always see some news about selling goods.
While selling goods, the operating rate of some weaving companies remains high. On the one hand, the looms are operating at full capacity, but on the other hand, companies have been selling goods. Why does this contradictory situation occur?
You will lose less by selling goods than by suspending production.
Mr. Wang is the person in charge of a four-way elastic weaving company. His factory has more than 60 water-jet looms. However, because the business of elastic fabrics was good in the past two years, this year he purchased 200 more looms in northern Jiangsu in advance.
Mr. Wang said: “Affected by the epidemic this year, there are almost no good-selling varieties on the market. After August, the market moved a little bit, but production and sales are still uneven, and inventories are still rising. But even so, the looms are still It can’t be stopped because the machine will suffer even more losses if it is stopped.”
The editor asked Mr. Wang why, and Mr. Wang replied: “If the machine is shut down, factory rent, quota fees, water, electricity, and sewage fees will still have to be paid. And even if work does not start, workers must be given a minimum wage to maintain their livelihood. Otherwise, if you want to start operations in the future, you will be in a dilemma of not being able to recruit workers. Moreover, the factory cannot switch to producing some cheap cloth, because customers are all in four directions. If you don’t switch to production, you can occasionally receive some orders. If you switch to production, it will be more difficult to keep inventory. sold.”
Finally, Mr. Wang said helplessly: “Since the four-way elastic contains spandex, the storage time is limited, so after a while we had to reduce the price and sell the goods. Fortunately, the four-way elastic is not as “bad as the pongee and polyester taffeta”. , and did not fall into the situation of “selling goods but no one wants them”. After calculating such an account, running the machine at full capacity and selling goods will even lead to less losses than shutting down the factory.”
Inventories become the biggest obstacle to market recovery
The editor has always been surprised that the market situation is so bad this year, and most of the weaving companies have uneven production and sales. However, from the market understanding, there are still many companies with full looms. Maybe they all have the same savings as Mr. Wang. idea.
But this has also led to a very serious problem, that is, inventory accumulation is very fast. According to data monitoring from China Silk City Network, the current operating rate of looms in Jiangsu and Zhejiang is around 63%, while the average inventory of conventional gray fabrics has reached more than 45 days.
The more cloth in stock on the market, the lower the price of gray cloth. If the weaving manufacturer wants to sell goods, it will have to use a lower price, and the greater the loss will be. The greater the losses, the tighter the cash flow of the weaving company. When the cash flow is close to drying up, it is impossible not to shut down the factory. According to the above profits, the company will fall into greater losses by then, even if the market improves. , it became difficult to turn over again.
In addition, excessive inventory has also brought about a more serious problem, which is that it will delay the recovery of the market.
Recently, news about the COVID-19 vaccine has entered everyone’s attention. Unlike the previous times when it was still in the experimental stage, this time the vaccine is really going to be on the market.
Liu Jingzhen, Secretary of the Party Committee and Chairman of China National Pharmaceutical Group Corporation, said that after the completion of the third phase of international clinical trials, the inactivated vaccine can enter the approval process and is expected to be launched by the end of December this year.
Vaccine promotion takes time. According to a more optimistic estimate, we assume that the global COVID-19 epidemic will be controlled at the beginning of 2021. But even if the COVID-19 epidemic is controlled, will the market improve immediately?
Things are not that simple, because even if demand improves, there are still huge inventories of gray fabrics on the market.
The textile industry already has overcapacity, and the external international environment is not friendly at this stage. Southeast Asian countries are taking away more and more orders, and anti-China sentiment is rising in European and American countries in order to divert public attention. Under such circumstances, it would be a blessing among misfortunes if the inventory produced this year can be basically consumed by the second half of next year. According to this algorithm, the market improvement will not have to wait until the end of next year.
Editorial
For many textile companies, affected by sunk costs such as rent, quota fees, machine depreciation, and sewage fees, the losses caused by the suspension of production sometimes exceed the sales, which leads to the phenomenon of “the more you sell, the more you lose, the more you lose.” The phenomenon of throwing more and more.
But as a result, there are more and more inventories on the market. Even if demand improves after the vaccine is released, the recovery of the market will still be delayed due to the huge amount of inventory, which will further test the cash flow of textile workers.
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