This time around demand destruction by coronavirus crisis saw prices of all textile raw material and products decline reflecting weakening market fundamentals. But added to this, has been the crude oil price war, and the destruction became more alarming and damaging. Almost all feedstock and fibre intermediate values have touched all time or historical low and are dwindling relentlessly week after week. (For more details on current status please refer to Textile Beacon’s “Global Markets Weekly Review” reports).
The financial crisis of 2007–08, also known as the global financial crisis, was a severe worldwide economic crisis. It is considered by many to have been the most serious financial crisis since the Great Depression of the 1930s. Now coronavirus superimposes the preceding 2007-2008 economic crisis. Prices are falling and recovery in demand not seen on the horizon.
Let us repaint the trends during the 2007-2008 economic crisis, to see how long the current one will prevail, although it is termed more severe. There could some elements which can provide some insight of a possible recovery. It is worth reiterating the scale of that crisis. 2009 became the first on record where global GDP contracted in real terms. The process of responding to the crisis, the subsequent deep recession and the impacts on governance of the global financial system, took the better part of next one decade to implement before there was a reliable return to growth across the US and Europe. During that period, major economies like China and India could defy the gravity to a large extent, while developed economies succumbed posting negative real GDP growth in 2009. World economic real GDP declined 1.7% year on yearin 2009. During the same year, GDP declined 2.5% in US, 5.7% in Germany, 4.2% in United Kingdom, and by 5.3% in Italy – the latter is the global fashion capital. China rebutted the decline by growing 9.4% and India by 7.9%. While growth rates are estimated to have declined in US and Europe in the current crisis, even China and India have shown considerable slowdown in their economies. India was already in the slowdown mode for quiet sometime, even before the coronavirus crisis was cultivated.
The next part will decipher the pricing trends in textile during the financial or economic crisis of 2008-2009 and see what is in store in the current situation. Just to recall, the 2008-2009 financial crisis was also cultivated by China.
When will textiles tide over coronavirus crisis Part 1 had summarisedthe current status and had attempted to find some clue of recovery in terms of economic growth in the similar but of less destructive previous economic crisis of 2008-2009. In both the crisis we have seen demand shrinking rapidly and textile prices pushed down and down. Let us first look at the trends in pricing that prevailed in 2008-2009.
Our basic tenet assumption is that, under any circumstances prices reflect demand levels. They begin to decline rapidly when demand shrinks and as a consequence, values across the textile chain start collapsing to touch new lows. And when prices start moving up, it is only because demand begin to look up to revive and then rebound, whatsoever the measures are taken to revive the economic growth. We reiterate that demand for textile is strongly correlated with income level and its growth while price is only a reflection of demand. Thus, movement in prices will provide basic clues of the potential revival in demand and the duration of descending and ascending of prices. This means, the point of time when prices start falling and touch the low from where it begins to reverse and the time to come back to the levelsfrom where they began their downward journey.
Here we select two fibre chains, polyester and cotton to study the finds clues. They both account for more than 70% of all kinds of fibres used in textiles. Within polyester, we look at purified terephathalic acid (PTA) and polyester staple fibre (PSF). In cotton, the markers representing are US cotton Futures and the Cotlook Index. In this part, we take up knowing the polyester chain.
In Europe, declined in polyester chain also began in July 2008 with PTA and PSF prices began to fall. They kept falling until January-February 2009, taking a longer time than Asia of about 24 weeks. After touching the low, they gathered upward momentum but hovered below the July levels until January 2011, taking almost 31 months. In 2008, Europe accounted for less than 5% of both global PSF capacity and supply.
Overall, it appeared the demand shrinkage represented by prices lasted for about 16-24 weeks or 4-6 months in the 2008-2009 financial or economic crisis. But took about 11 quarters in Asia to come back to pre-crisis level in Asia. Meanwhile China ramped up its polyester making capacity to 65% globally.
In our concluding Part – 3 will juxtapose the 2008-2009 polyester pricing trends with the current trend along with cotton. The next few weeks are crucial to watch the developments, since China already returning back to normalcy with very few pockets of lockdowns. But this return will only revive the local or domestic demand, as rest of the world still remain in lockdowns and have shut all their inward movement of goods. So there is no destination for Chinese textiles at the moment.
Authored by :
Mr. Nitin , Textile Beacon , www.textilebeacon.com
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