Wednesday, January 26, 2011

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.

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