FIFA News: Analysis And Investigation Of Xinguan Epidemic In The Past Two Years And In The Future

The 12th investigation report on the new crown epidemic situation of the International Textile Federation

——The impact of Xinguan epidemic on global textile industry

Dr Christian Schindler, director general of IFN

　　1. In January 2022, the operation of global textile value chain will keep a good trend

In the last ten days of January 2022, the international textile Union (IFA) conducted the 12th investigation on the new epidemic situation of the international textile Union since March 2020. More than 270 enterprises from various regions and industries participated in the survey. This chapter discusses the operation of the industry in late January 2022.

In January 2022, the overall operation of global textile value chain remains at a relatively high level (Figures 1 and 2). In November 2021, the difference (positive balance) between the proportion of "good" and "bad" operations decreased from + 28pp to + 23pp in January. This is still a very high number, indicating that the consolidation of the economic recovery began in the second quarter of 2021. The fact that the proportion of companies reporting "satisfactory" operations rose from 40% in November 2021 to 48% in January 2022 (Figure 1) supports a robust and broad recovery. Since November 2021, the number of infections worldwide has been on the rise, caused by the highly contagious but less severe coronavirus. Omicron cannot stop the global economy from recovering.

Most governments around the world have not adopted new blockades and have recently signalled that existing restrictions will be relaxed in the coming weeks and months if the health system is no longer under overwhelming threat.

From the perspective of different regions, the business performance of enterprises in January 2022 shows a trend from good to very good, especially in North America (+ 56pp) and South America (+ 55pp), Europe (including Turkey (+ 44pp), Southeast Asia (+ 31pp) and South Asia (+ 31pp) (see figure 3 below). At the same time, companies in East Asia and Africa are not satisfied with their business.

Since May 2021, the development of various regions shows that the operation of the industry is stable, with few exceptions. In July 2021, the business situation in South America deteriorated sharply. In the winter of the southern hemisphere, due to the increase in the number of infected people, only + 13pp was found, but it soon recovered. Similarly, the situation in Southeast Asia deteriorated significantly in September 2021. The blockades of Vietnam and Indonesia were imposed for weeks. In addition, the operating conditions improved rapidly after the closure period. Since May 2021, the operating conditions of African enterprises have been between "bad" and "satisfactory", which is quite unstable. In East Asia, the industry is still in the doldrums. Since May 2021, the difference between the proportion of "good" and "bad" enterprises has been hovering between - 20pp and - 40pp. The reasons include the restrictive policy of new pneumonia in your region, especially the "zero" strategy adopted by China; The energy crisis in the fourth quarter of 2021; Or because of the trade blockade of important countries, the quantity of purchasing from China is reduced. In addition, the NCP epidemic has accelerated the more diversified purchasing patterns of brands / retailers.

Judging from the operation of each market segment, in January 2022, all segments have a positive balance (see Figure 4 below). In particular, the operating conditions of textile machinery enterprises are very good (+ 48pp). The upstream segment - fiber producers and spinning companies - also had good business conditions at + 27% and + 20% respectively. Downstream, textile / knitting (+ 8pp), dyeing and finishing / printing (+ PP) and textile chemicals (+ 12pp) also reported good business conditions. Clothing production enterprises and home textile enterprises also performed well. The development situation of home textile enterprises is very good, and the positive balance is + 33pp. Clothing manufacturers have also had the best operating condition (+ 10pp) since May 2021. To sum up, it can be seen that all sectors of the textile value chain have benefited from sustained economic recovery, despite the surge in Omicron infection worldwide since November 2021.

　　2. Enterprises in the global textile value chain hope that their business will continue to improve in the future

The 12th International Textile union new crown epidemic impact survey was conducted in late January 2022. This is the fifth time in a row that the same question has been asked to the enterprises participating in the survey. This chapter describes the expected results for the business after six months (July 2022).

On average, companies around the world have positive business expectations (see Figures 1 and 2 on the right). Six months later (July 2022), the difference between "more favorable" and "less favorable" expectations is considered to be + 27pp (40% - 13%). Although this is the lowest since May 2021 - the first time the question was asked, even though it was + 41pp, it was still at a fairly high level. In this case, it is important to note that over time, the economy will shift from recovery mode to stable mode.

A good sign is that 47% of respondents said they did not expect the business situation to change in the coming months. In other words, the high proportion of companies with satisfactory (48%) or good (38%) business conditions, together with the large number of enterprises expected to be more profitable (40%) or remain unchanged (47%) within six months, indicating that the global economy is strong and extensive.

The regional perspective (Figure 3 below) shows that companies in almost all regions expect a "positive" business situation in six months (July 2022). Especially in South America (+ 50pp), Africa (+ 47pp), Southeast Asia (+ 44pp) and North America (+ 28pp), companies are generally optimistic about the future. In addition, companies in South Asia (+ 13pp) and Europe (+ 7pp) are expected to stay on track. In Europe, 43% and 51% of Companies in Europe considered their business conditions satisfactory or good in January 2022. Therefore, the expectation that business will not change in the next six months (72%) is a very good signal. East Asia is the only region where the difference between "positive" and "negative" business expectations is negative (- 3PP). In East Asia, the difference between "good" and "bad" business conditions in January 2022 is negative - 20pp (21% - 41%), and business expectation (July 2022) is negative balance - 3PP (23% - 26%), which indicates that business development in the region is restrained.

Looking at the different segments of the textile value chain (Figure 4 on the next page), the upstream links - fiber producers and spinning companies - are expected to improve their business, or not at all (+ 7pp and - 20pp, respectively). The same is true for textile / knitting enterprises (+ / - 4pp), while other downstream links are expected to move in a more favorable direction on average by July 2022 (dyeing and finishing / printing (+ 21pp), clothing manufacturers (+ 46pp) and home textile producers (+ 8pp)). In the field of textile machinery, 54% of the enterprises reported good business conditions in January 2022, and 77% of the enterprises expected their business to remain unchanged until July 2022. In addition, they have achieved a positive balance of + 10pp (17% - 7%) on business expectations, and this segment will surely find itself in a strong business cycle. In terms of business expectations, the textile chemicals (including dyes and auxiliaries) production sector is in negative balance - 11pp (22% - 33%). This is surprising as business conditions have improved in January 2022 compared to previous surveys.

　　3. The number of orders decreased slightly from a higher level, but the enterprises are still optimistic

The 12th International Textile union new crown epidemic impact survey was conducted in late January 2022. This is the fifth time in a row that the same question has been asked to the enterprises participating in the survey. This chapter describes the results of order receiving.

On average, the global balance between "good" and "bad" orders reached + 30pp in January 2022 (Figure 2 on the right), lower than + 40pp in November 2021 (Figure 1 on the right), but still at a relatively high level, especially compared with may 2021 (+ 19pp) and July 2021 (+ 14pp). It is worth noting that the positive results are expected for the order volume within six months. For "good" and "bad" orders in July 2022, the expected balance difference remains at a very high level of + 40pp (may 2022 was + 41pp).

In other words, despite a slight decline in orders in January, the average expected orders will remain at a high level. The positive results received by these orders go hand in hand with the positive results of business conditions and business expectations.

Regional analysis (Figure 3 on the right) shows that the order volume in January 2022 is particularly strong in North America (+ 61pp), followed by Europe (+ 57pp), Southeast Asia (+ 53pp), South Asia (+ 44pp) and South America (+ 30pp). In East Asia and Africa, the balance difference between "good" and "bad" orders is negative (- 10pp and - 29pp, respectively). In several regions, the expected order volume has increased from relatively high levels, such as North America from + 61pp to + 67pp, South Asia from + 44pp to + 63pp, South America from + 30pp to + 61pp, Africa from - 29pp to + 12pp, and East Asia from - 4pp to - 6PP. Only in Europe is it expected to fall from + 57 to + 32. This is the expected result of an already very good order taking situation, especially for textile machinery manufacturers with strong representation in Europe. Excluding machinery manufacturers' expectations for July 2022, the balance difference in Europe will be + 24pp, not + 32pp.

Research on different market segments shows that in January 2022, all segments have a positive balance between "good" orders and "bad" orders. As in the previous survey, the positive balance difference of textile machinery enterprises is + 62pp, followed by home textile manufacturers (+ 54pp). The upstream segment - fiber producers and spinners - still reported good orders at + 40pp and + 30pp, respectively. The downstream segments (Textile / knitting (+ 30pp), textile chemicals producers (+ PP), dyeing and finishing / printing (+ 12pp) and apparel manufacturers (+ 18pp) also reported positive orders. This fact shows that the recovery has spread to the entire textile value chain. As for the six-month order volume forecast, companies in all segments are optimistic, especially garment manufacturers (up from + 18pp to + 40pp).

　　4. Global undelivered orders remain high since November 2021

More than 270 enterprises participated in the 12th International Textile Federation new crown epidemic investigation in late January 2022. This is the fifth time in a row that the same question has been asked to the enterprises participating in the survey. This chapter describes the results of undelivered orders and capacity utilization.

Globally, undelivered orders fell from 2.9 months in November 2021 to 2.7 months in January 2022 (Figure 1 on the right). This reduction can be explained by a small relief in the relatively high global order backlog, mainly due to supply chain constraints and high demand. The outlook for the next six months before July 2022 shows that the average number of outstanding orders remains at about 2.7 months.

In different regions, Europe (including Turkey) has the highest number of undelivered orders, about 5.1 months (Figure 2 on the right). This is significantly lower than the six months in November 2021. In North America, the backlog in January 2022 did not change from 3.9 months in November 2021. The level of undelivered orders in the region is significantly higher than in other regions, in line with very good business conditions and very positive business expectations. In East Asia, undelivered orders fell from 3.0 months in November to 2.7 months in January, while in South Asia, undelivered orders remained stable at around 1.8 months. In Southeast Asia, undelivered orders fell from 2.5 months in November 2021 to 1.3 months in January 2022. In South America and Africa, undelivered orders increased from 1.6 months to 2.0 months and from 1.7 months to 2.0 months, respectively.

Interestingly, by July 2022, undelivered orders are expected to increase in most regions, including East Asia, Southeast Asia, South Asia, Africa and South America. Companies don't seem to expect a short-term balance between supply and demand. Only companies in Europe and North America expect a decline in the number of undelivered orders, although at a higher level compared to other regions.

In different links of textile value chain, the situation of undelivered orders varies from link to link (Figure 3 on the right). The average decline of textile machinery enterprises in January 2022 is 6.3 months, which is lower than 6.8 months in November 2021. Similarly, the outstanding orders of spinning enterprises, weaving enterprises / knitting enterprises, dyeing and finishing / printing enterprises and clothing manufacturers were lower than those in November 2021. On the other hand, undelivered orders from fiber, textile chemicals and home textile producers increased. In most sectors, the number of outstanding orders is expected to decline by July 2022 (Figure 3). Only weaving / knitting enterprises, dyeing and finishing enterprises / printing enterprises and garment manufacturers are expected to have longer outstanding orders.

　　5. Capacity utilization rate remains stable at a high level

The global capacity utilization rate of 81% in January 2022 (Figure 1) is actually the same as that in November 2021 (82% of the results of the 12th International Textile Federation new crown epidemic impact survey).

Regional analysis shows that capacity utilization has increased or decreased slightly in most regions except Africa since November 2021 (Figure 1). East Asia rose from 76% to 81%, Southeast Asia from 83% to 86%, and North America from 80% to 82%. South Asia dropped from 86% to 84%, Europe from 87% to 86%, and South America from 87% to 83%. Africa's capacity utilization rate dropped sharply from 73% to 65%.

Looking to the future, companies expect global capacity utilization to rise from 81% to 85% by July 2022. In fact, all regions expect capacity to be more fully utilized in six months. African companies, in particular, hope to achieve a capacity utilization rate of 76% by July, up from 65% in January (Figure 1).

In terms of industrial chain links, the situation of upstream segmentation was further improved (Fig. 2). In January 2022, the capacity utilization of fiber producers was 87% (84% in November 2021) and 89% in spinners, up from 87% in November 2021. Weaving / knitting reports increased from 77% to 83%. Textile chemicals manufacturers, dyeing and finishing / printing enterprises, and clothing manufacturers decreased from 84%, 82% and 80% to 83%, 80% and 76% respectively. The capacity utilization rate of home textile manufacturers remained at a very high level of 88%.

The outlook for July 2022 remains unchanged or positive in almost all areas except home textile producers.

　　6. Inflation is expected to remain high after 2022

In November 2021, participants in the 12th International Textile Federation new crown epidemic impact survey were asked whether they expected inflation to remain high in 2022. At that time, 63% of the respondents answered yes. Two months later, in January 2022, the figure rose slightly to 66% (Figure 1).

Only 14% think inflation will return to normal by 2023, 20% don't know.

Regional analysis shows that the difference between "yes" and "no" is + 17 percentage points (PP) in South America and + 59 percentage points (PP) in South Asia.

In terms of market segments, the balance of + 31pp for home textile producers is the smallest and that for spinning mills + 77pp is the largest.

　　7. Higher raw material, transportation and energy costs are the main problems

In the 12th International Textile Federation new crown epidemic impact survey conducted in late January 2022, enterprises were asked about their biggest concerns (Figure 1).

At the top of the list was the price of plateau materials (28%), followed by high logistics costs (18%) and high energy costs (13%). Other problems, such as the lack or delay in the receipt of production materials (12%), inflation (10%) or lack of talent / workers (9%) also played a role, although the impact was much smaller than the rise in costs.

Interestingly, weak demand is not a problem. Only 6% of companies think demand will weaken in the next six months. Despite concerns that rising costs and rising inflation may have a negative impact on consumer sentiment, businesses are optimistic that consumer demand will remain strong in the coming months.

Given that there are several conflicts in both Asia and Europe that could threaten stability and thus a sustained economic recovery, it is a surprising fact that geopolitics does not seem to be worrying (only 3%). In particular, the discussion of headlines that Russia may sweep Ukraine and around the world in January 2021 does not seem to worry companies.

(source: IFN)