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VietNamNet Bridge – Not only having to face the sky high landing interest
rate and inflation rate, Vietnamese textiles companies, which has been relying
on imported materials, are also meeting big difficulties due to the cotton price
fluctuations.
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The price jumped to 5 dollars a kilogram from 2-3 dollars a kilogram.
Meanwhile, the cotton price dropped dramatically in the second quarter; this,
plus the fact that companies could not sell fiber have led to a lot of
consequences. Some enterprises had to cut down production to ease the stocks,
while others had to break contracts, accepting loses which may lead to the
bankruptcy.
Vu Huy Dong, General Director of Dam San Fibre Textile Company, said that the
companies in the field couldn’t arrange their production plan quickly due to the
unexpected sharp price fluctuation. Dam San incurred a big loss since it
imported cotton at high prices and sold products at the time when cotton prices
decreased.
With such heavy fluctuation, no businesses could avoid losses in the
period from April to November, because the cotton price drop dramatically from 5
dollars when enterprises order the imported to 3.9 dollars per kilo, while the
imports arrive the storehouses. After fulfilling the orders, the cotton price
drop further to 2.5 dollars per kilo. As a result, lucky enterprises incurred
the loss of 1-3 billion dollars, while unlucky ones incurred the loss of 7-8
billion dollars.
According to Dong, the domestic cotton supply can only satisfy 2 percent of
demand from domestic textile companies, while the other 98 percent must be met
by imports. It takes 1.5-3 months to place orders and import cotton average. It
takes 2-2.5 months to import cotton from East and West of Africa, 1-1.5 months
to import cotton from America and India.
Therefore, only the companies, which can plan
their cotton import and production well, can avoid risk. In principal, according
to Dong, enterprises can minimize their loss by taking insurance policy for the
cotton price fluctuation. However, this cannot be done in Vietnam. Dong thinks
that as for the contracts in which the letter of credit (LC) has not been
opened, textile companies should negotiate with the importers to obtain the best
prices which are the mixture of the old and the new prices.
Jonathan Devine, from the US Cotton Association, said that the cotton price has
dropped sharply to 2.4-2.5 dollars per kilo, suggesting that it is the right
time for textile companies to buy cotton to serve their production plan for
2012.
The US Agriculture Department has estimated that by the end of 2011-2012, cotton
crop 2.9 million parcels of cotton would be added into the world stock. The
factor could push up the downward trend of the cotton price. There are many
reasons that make people believe that the cotton price would not increase
sharply in 2012: the lower demand and the economic difficulties in big markets
such as the US, Japan and Europe.
Le Tien Truong, Deputy Chair of the Vietnam Textile and Apparel Association (Vinatas)
said that it is necessary to draw lessons from the situation in 2011. Truong
said that in the long term, Vietnam needs to control the cotton supply instead
of relying on imports by developing the cotton growing areas.
Source: TBKTVN
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