Chemical Fibers: Shaking off Predicament

By Zheng Junlin

Overall improvement in 2006

In spite of unfavorable factors such as high raw material prices,
textile export rebate reduction, export growth slowdown,
aggravated international trade friction and sustained Renminbi
appreciation, producers in the chemical fiber sector
accelerated technical progress and structure readjustment and
achieved satisfactory overall performance in 2006. Exports grew
rapidly and industrial competitive edge was enhanced.

1. Price ups and downs

The market price of chemical fibers in China was basically stable
and had a slight increase from January to May 2006. Due to the
price rise of raw materials, however, the market price of most
chemical fibers increased rapidly from June to August. The
market price of chemical fibers dropped from September to
October. It then fluctuated only slightly from November to
December. The market price of chemical fibers was mainly
affected by the price change of raw materials. The market price
of viscose fibers was mainly affected by market supply and
demand.

2. Considerable import reduction and rapid export growth

China's output of chemical fibers was 20.255 million tons in 2006,
an increase of 24.3% over 2005.
   In the time of rapid output growth, the production/sales
ratio of major chemical fibers reached 100%. Inventories of
chemical fibers were basically equal to those in 2005. There was
however a great difference in the inventories of different
varieties. Inventories of acrylic fiber and viscose staple fiber
increased considerably whereas inventories of polyester staple
fiber and viscose filament fiber decreased greatly.
   With the brisk production and sales in the domestic market,
the import of chemical fibers declined rapidly. China imported
1.18 million tons of chemical fibers from January to November
2006, a drop of 15.8% from the same period of 2005. The export
of chemical fibers continued rapid growth. The total exported
amount of chemical fibers from China was 951 thousand tons from
January to November 2006, an increase of 48.4% over the same
period of 2005. The exported amounts of polyester filament fiber,
polyester staple fiber and viscose filament fiber were 353
thousand tons, 271 thousand tons and 81 thousand tons
respectively, holding the first three places and accounting for
37.1%, 28.5% and 8.5% of the total. The total annual imported
amount of 2006 was expected to be 1.28 million tons and the total
exported amount was expected to be 1.05 million tons.

3. Drastic profit growth

The chemical fiber sector took a profit of RMB5.531 billion from
January to October 2006, an increase of 38.63% over the same
period of 2005. The total profit in the whole of 2006 was expected
to be around RMB6.0 billion. The loss in loss-generating
companies was 20.33% lower. State-owned and state-controlled
companies gained a profit of RMB956 million, an increase of
154.1%.
   The functioning of the chemical fiber sector had an overall
improvement from January to October 2006. The industrial total
output value achieved was RMB257.6 billion, an increase of 19.6%
over the same period of 2005. The industrial total output value
in the whole of 2006 was expected to be more than RMB300 billion.
The product sales revenue realized was RMB236.5 billion, an
increase of 20.5%. The product sales revenue for the year of 2006
was expected to be RMB282 billion. I addition, debt-repaying,
operating and profit-earning ability was also increased.

Analysis of the functioning in 2006

1. Textile production sustained rapid growth

The product sales revenue accomplished in the textile sector
from January to October 2006 was RMB1 944 billion, an increase
of 22.2% over the same period of 2005 and the growth was 4.1
percentage points lower. The industrial total output value
(current price) was RMB2 025.1 billion, an increase of 22.0%,
with the growth rate of 3.9 percentage points lower.
   The growth of the major chemical fibers supply was generally
close to the growth in output of downstream products. So the
market supply and demand was basically balanced in 2006.

2. Growth of textile exports slowed somewhat

The export value of the textile sector from January to October
2006 was US$120.5 billion, an increase of 24.0% over the same
period of 2005. The 2006 annual export value was expected to be
US$145 billion. The export value of textiles alone was US$43.0
billion, an increase of 18.3%. The export value of clothing was
US$77.5 billion, an increase of 27.4%. The export value in
state-owned and state-controlled companies was RMB25.2 billion,
only an increase of 0.01%. The export value in non state-owned
companies was RMB511.1 billion, an increase of 16.2%.

3. The supply deficit of major chemical fiber raw materials was
eased

The high price and great price fluctuations of crude oil in the
international market produced considerable impacts on the
chemical fiber sector, especially on chemical fiber raw
materials. The capacity of most chemical fiber raw materials
increased in 2006 and the supply deficit was eased. The growth
of imports slowed with the imported quantities of some varieties
lower than in 2005. The imported amount of major chemical fiber
raw materials was 12.022 million tons in 2006, an increase of
5.2% over 2005.

4. Cotton price maintained low level

The cotton price in China had narrow fluctuations around RMB14
000 per ton in the first half of 2006. The fluctuation margin
was RMB200-300 per ton. The price declined slowly after March
2006 and had a weak recovery in July and August. It then resumed
the slow decline and at last, only upon approaching yearend,
started to pick up.
   Cotton has strong mutual substitution with polyester staple
fiber and viscose staple fiber. Due to the price rise of raw
materials, the price of chemical fibers had a space for increase,
but the low cotton price greatly inhibited the price rise of
chemical fibers.

5. The growth of fixed-asset investments picked up

With the impact of macro economic controls, the growth of
fixed-asset investments in the chemical fiber sector reduced
drastically from 44.1% in 2004 to 2.0% in 2005. The growth from
January to May 2006 was only 3.2%. It picked up, however, after
June and reached 23.0% from January to October 2006. The growth
of fixed-asset investments in the whole of 2006 was expected to
be around 25%. The rapid rebound of the growth in fixed-asset
investments will produce great impacts on the functioning of the
chemical fiber sector in 2007 and 2008.

Restorative stable growth in 2007

Generally speaking, the performance of the chemical fiber sector
in 2006 was normal. In spite of a growth in various indexes over
2005, the economic functioning of the chemical fiber sector was
still in a period of readjustment. With impacts from the economic
growth slowdown in the world and in China, the sustained
aggravated friction in international trade and the high price
level of crude oil and chemical fiber raw materials, the chemical
fiber sector in China will maintain a restorative stable growth
in 2007. The output of chemical fibers will reach around 21.5
million tons in 2007, but the growth will be lower. The growth
in fixed-asset investments will be maintained at 15% - 20%. The
import of chemical fibers will continue to drop at a remarkable
rate. In balance, exp