My Prayer

When I woke up on Friday the 11^th, I did my usual routine before I went to work. Everything seemed so normal and calm. I got to my office on time and there was a parcel waiting for me. I opened it up and found myself two pieces of fantastic Japanese made fine denier fabric. I immediately drew out my 40x magnifier in hope to uncover the secret behind such artistic work. But I was asked by my superior to deal with an emergency issue for a client, so I left my office and the unthinkable happened.

Strong earthquakes hit the Tohoku Region in Japan that same afternoon. At first, I didn’t think it would be that serious given that earthquakes happened quite often in Japan. While on my way home, I turned on my favorite radio station, I heard that a couple hundred people died during such catastrophic incident and the Central Weather Bureau in Taiwan lifted the tsunami alert. I suddenly came to realize just how severe the incident was.

I swiftly drove home and turned on my television, I was shocked. The earthquake itself caused some major damages. The tsunami, on the other hand, caused damages beyond imagination. The vivid image of television broadcasts continued to show the after effects caused by the earthquakes and tsunami, but what really got to me was the scrolling text. It kept showing that how many hundreds of bodies were found in a particular region and how many thousands of people who had gone missing.

Call me sensitive all you want! We are talking about people’s life here!

In August 2009, Typhoon Morakot caused a catastrophic mudslide in Southern part of Taiwan. A village called Hsiao-Lin was razed to the ground and over 600 residents were buried alive. It was devastating. I could only pray on something like this will never happen again.

And now, Japan is facing the worst ever crisis. Such a harrowing tragedy touches every one of us. My prayer goes to the Japan and its people. Wishing you all to have the strength, courage and hope to make it through.

February Industry News

Who let the dogs out!

[woof, woof, woof, woof]

The top dog is out to bite again!

Formosa Taffeta is going for another price increase in March, 2011, said the source.

For how much? Don’t know yet! I would recommend for those of you who hasn’t or plan to issue your PO better jump the queue. Otherwise, you are going to miss the boat!

As crude oil and CPL price elevated steeply, weavers in Taiwan are now expecting yarn price to increase again. So, most factories don’t want to stock up their yarn supplies. The average lead time has extent to 90 days from 60 days and greige sells out on a pre-order basis. I know it’s going to be a hell of a wait. But smart merchandisers or buyers like you should plan ahead of your production plan and reserve the yarn or greige as early as possible!

That’s not all, the largest or the only CPL supplier in Taiwan, China Petrochemical Development Corporation (1314.TWSE) has scheduled annual preventive maintenance for two of its production plants in Q1 and Q2, 2011. This means, the nylon chip supply will tighten up drastically.

Also, if you have been waiting for cotton related product price quotation, you are likely waiting in dead men’s shoes. The demand for cotton had pushed the price of cotton to a historically high. Almost all cotton factories in Taiwan stopped giving out cotton related quotations before Chinese New Year.

I have got a good news though, the “Hot Money” in Taiwan has shifted to outflow. The foreign exchange rate seems to be stabilized. Although the effect is insignificant, it can still minimize some of the price difference from TWD to USD.

Correlation

In my earlier post “Supply and Demand”, I mentioned that “the oil prices will continue to rise in 2011 and possibly reach an average of $100 a barrel this year.” Today, oil surges again in the course of Libyan violence. Brent crude reached $114.13 while WTI crude goes over $100.75 a barrel.

Currently, there is a huge gap between Brent and WTI crude price. Historical evidence proved that two crude oil benchmarks will eventually come to an intersection - whether it’s Brent crude to go down or WTI crude to go up. One way or another, oil price will eventually starts to decline as researchers are dedicating themselves to search for improved alternative energy sources. But more to the point is how long does it going to take?

Now, from July, 2010 @ $84.15 to Jan, 2011 @ $178.93, the average price of Upland cotton per pound has landed an increased of $94.78 or 112.63%.

Let’s take a look at Spot Caprolactam price. From July, 2010 @ $2,500 per ton to February, 2011 @ $3580 per ton, CPL netted an overall increase of $1080 or 70%.

The correlation between CPL and oil is apparent, but what about cotton and CPL?

A simple logic would be the cotton price comes in way too high and people start to seek for alternatives. A simultaneous increase in demand and decrease in supply, the price of synthetic will be increased. So, we are actually looking at a price module where cotton price will start to decrease at the cost of synthetic price to increase.

Nonetheless, it sucks to bring the bad news on the price front. But the fact is that the market got so used to stable or decline textile raw material prices for so many years. Now, it is imperative to understand why the price of synthetic fiber is going upwards.

 

Rough Patch

It’s getting real ugly out there now. Formosa Taffeta is going to increase its textile price again, effctive February, 2011. The increase runs roughly USD$0.05.

For those of you who are not familiar with the textile industry in Taiwan, Formosa Taffeta is like the top dog of the industry. When it announces an increase in price, almost every, company, factory or mill in Taiwan is going to do the same.

It is the third time since last October. If we add that up to the pervious ones, it’s a total of USD$0.15 increase over the past six months.

What’s even worse is that I heard the company intends to increase it again in the near future.

Com’on, stop with the price increase already! L

Let me try to explain how bad the situation is in simple mathematical terms,

If I were to sell an article that costs $33 NT dollars a yard, using unrealistic quotation formula, it would look something like this six month ago,

$33 (cost in NTD) / $33 (USD exchange rate) = $1 (cost in USD)

$1 / 0.98 (2% markup) = $1.02 (quotation price)

Let’s kick in the exchange rate here:

$33 (cost in NTD) / $29 (USD exchange rate) = $1.14 (cost in USD)

$1.14 / 0.98 (2% markup) = $1.16 (quotation price)

Now, after the cost has been increased:

$37.50 (cost in NTD) / $29 (USD exchange rate) = $1.29 (cost in USD)

$1.29 / 0.98 (2% markup) = $1.32 (quotation price)

From USD$1.02/y to USD$1.32/y, the difference is significant and shocking. You can pretty much imagine the conversation will be like the next time you call or email me for price quotation.

Anyway, my point is that none of this extra margin goes into my pocket. The raw material cost and foreign exchange rate obviously played the big roles in this. As the situation gets too hot to handle, I wonder how many textile companies in Taiwan can survive through this.

So, seriously, stop with the price increase already, I haven't found a new job yet!!!

Supply & Demand

Let’s continue from my pervious post,

1. Crude Oil Price

This one is pretty obvious. EG and PET are the by-products of crude oil. As crude oil price goes up, so does the synthetic fibers.

Now, the crude oil prices hovered above $89 a barrel on Monday in Asia. The Centre for Global Energy Studies stated that if OPEC doesn’t raise its crude oil output to meet the demand this year, the oil prices will continue to rise in 2011 and possibly reach an average of $100 a barrel this year.

After a fact and perdition like that, if I were CEO of a major raw material company, I ought to increase the price right now to avoid taking a big hit to the company’s bottom line. So, I can envision that the price of nylon and poly will continue going up after Chinese New Year.

2. Anti-pollution Campaign and Environmental Safety Standards

This anti-pollution campaign has been going on for sometimes now. Especially in China, textile factories that don’t have the sliver bullets to make the new environmental standards will be forced to shut down like the Fuan Textile Mill in Dongguan years ago.

In addition to that, almost every textile product that sells to EU must in compliance with REACH. More aggressive companies even require textile supplier to have both Oeko-tex and Blue Sign. It pretty much rules out the majority of textile supplier in Taiwan. More importantly, these certifications ain’t cheap. A lot of that additional cost is going to go right into the fabric price J

3. Governmental Policies

The Chinese workforce is pushing for higher wages and better working conditions. After China come the Bangladesh, Sri Lanka and Pakistan. Sweatshop or not, this type of movement is a trend. As factory operating costs continue to go up, chances are that the textile price will go up as well.

4. Environmental Factors

As weather forecasters have been screaming this winter could be the coldest ever, companies are showing rocketing sales of insulated jackets across the world. But when it gets so cold, everything freezes. We are going to need a lot the Anti-freezers as well. Ethylene Glycol (EG), the precursor to polymers, is one of the major components of anti-freezer. So, I guess as EG demand goes up, there is no reason for polyester price to go down.

5. ECFA (Economic Cooperation Framework Agreement)

This can go for pages of discussion, but long story short. A lot of textile products made in Taiwan will enjoy a preferential duty from China. This means, Taiwan's textile products in the Chinese market will grow sharply because of lower import costs. With a domestic demand 1.3-billion-people big, I can only imagine the textile price to go up but down.

Man-made Fiber

I was at a meeting with a brand designer from U.K. the other day. While everything was going great, the price question just popped out of nowhere.

Yeah, I know that behind every purchase decision lies a question must be answered. This question happens to be always around the price.

Honestly, I like it when people ask me for a price quote even it can be a straight up deal breaker. What intrigues me is their answer. In this particular case, the answer was “Wow! So much for man made fiber”, said the designer.

I hate to admit it, somehow it makes sense. Unlike cotton which grows out of branches or cashmere that shed out from goats; nylon and polyester are made out of synthetic polymers.

How can you beat something that comes from nature! (cottontown.org; worldnews)

Then, I remembered an economics professor of mine in college once said; the market determines the price and supply and demands determines the market! Although, this actually brings back a lot of horrible and painful memories from the past but the theory makes a lot of sense as well.

Now, I must work my brain to the maximum capacity to solve this dilemma and I guess, I am gonna have to go with what my professor said this time J

I am glad that I was fairly a good student over my academic years so that I am able to list out a few good reasons why demand curve shifts to the right over the past few months,

1.      Crude Oil Price

2.      China’s Anti-pollution Campaign

3.      Environmental Factors

4.      ECFA (Economic Cooperation Framework Agreement)

I'll get into more detail later, but long story short, I don't expect nylon or ploy price to go down anytime soon.

Up and Running

I have been meaning to setup a blog like this to keep track of my progress here with the new company. Sadly, it has been almost a half year. So yeah, it takes me a lot longer than expected. However, life is good and job is gliding like it suppose to, I am going to try and sort of catch up with my schedule.

I don’t want this blog to sound like formal or anything, but I still want to state my purpose here loud and clear to remind myself to focus on the subject and not being sidetracked by some nonsense stuff.

“The purpose of writing this blog is to keep track of my work at Xtex while sharing my knowledge, experience and insight with others.”

There it is. I have said it out loud and clear. For those of you who are reading this blog, feel free to criticize me because I know I am a freaking idiot most of the time and easily being sidetracked by lots of things.

Please note that I have abbreviated the name of the company I am working for right now to avoid any deliberated attack or harass. So, for crying out loud, please don’t go online and google “Xtex”. It would be totally unintelligent.

I guess that’s it for the very first entry or shall I say let the party begin!