CHINA’S CLAMPDOWN ON POLLUTION IS CHANGING THE TEXTILE ENVIRONMENT
China’s move to enforce environmental regulations has entered a new phase, and by one estimate, a third of all factories in China have experienced at least some temporary closures. The Chinese Purchasing Manager Index (PMI) for October declined to 51.6 from a 5-yearhigh of 52.4 in September. The large-company PMI remained above 50,but the medium- and small-company PMI’s contracted to 49.8 and49.0, respectively; any index value below 50 denotes contraction. The China National Bureau of Statistics (NBS) said that the PMI for high energy-consuming and polluting companies declined as a result of the government’s crackdown on pollution violators.
The regulatory clampdown is showing no signs of weakening. Factories that burn coal or use electricity generated by coal, factories that are heavy water users and factories that discharge pollutants into water or air, are being shut down or forced to make significant investments in expensive treatment technology. Some factories are being closed altogether because they simply cause too much environmental damage. Even if a factory complies, a subcontractor could be shut down, disrupting the supply chain.
As of 2017, the size of the disruption is only a ripple going through the textile supply chain, but this is only the beginning. Other than new factories in the western region of Xinjiang,most of the country’s massive petrochemical, man-made fiber, textile and apparel operations are in Eastern China, which has the dirtiest air and water in the country.Iconic textile regions, such as Shandong and Hebei, are at the heart of the pollution crackdown.
The primary raw materials for producing polyester and other man-made fibers are crude oil, coal and natural gas, and one key target of the pollution crackdown is the use of coal. Polyester is produced from Purified terephthalic acid (PTA) and monoethylene glycol (MEG). Both are sometimes made from coal, and production of each has been affected by the closure of coal based plants.
While new production capacity is reportedly set to come on line in the man-made fiber sectors of China,there are also indications that the environmental regulations are curtailing domestic production and leading to increased imports of fiber. The increase in Chinese polyester fiber production from 1 million tons in 1990 to 35 million tons by 2015 put significant pressure on South Korean and Taiwanese producers, formerly the largest exporters. Ironically, in recent months China has actually begun to import polyester staple fiber. Imports in September from South Korea were up100% from a year ago, and imports from Taiwan and Thailand were also noted. This is quite unusual.
As crazy as the argument seems, there is a lot of hype in the apparel world regarding yarns made from recycled plastic water bottles, calling them Eco-Friendly. Recycling has become a big business in China, but the recycling process is energy intensive, and a large number of recycling plants have been closed in recent months. China has also announced that as of the end of2017, it will no longer allow the import of plastic bottle waste which is used as a raw material, leading to reduced prices for bottle waste in exporting markets. China is aggressively moving away from the products which have destroyed its environment. This will have huge consequences as it shakes the foundation of the global man-made fiber industry.
Viscose Production Curtailed
Much-hyped viscose fiber, which has taken market share from cotton due to its advantage in adding softness to products, is also being affected.Breaking down wood pulp into a fiber is environmentally damaging unless expensive equipment is installed, which has not happened in much of the Chinese industry. Water is an important resource for viscose manufacturing, and plants in China have typically been built adjacent to rivers and linked to their pollution.
Bamboo is also a popular raw material for viscose fiber in China and a couple of other locations in Asia. Bamboo has been promoted as a more environmentally friendly type of viscose because the bamboo is typically grown on marginal land. However, the process to breakdown bamboo is also harmful to the environment unless the process is strictly controlled. Worker safety is a major concern. Twenty-one companies in China now account for 65% of global viscose fiber production. One of the largest is in Jiangxi Province and has been sighted for releasing untreated waste water into China’s largest fresh water lake, Poyang, and for contaminating nearby rice fields.
The production cost of polyester fiber is increasing and will continue to move higher. Chinese fabric cost will move higher,as well. Unlike cut and sew operations, which can migrate to the cheapest locations, man-made fiber production and dyeing and finishing operations, which are linked to the discharge of untreated effluent, are capital intensive and cannot be moved easily. India, which would be one logical relocation target, already has a pollution crisis of its own. Vietnam, which has drawn some of the largest investments in textile production in recent years, has already taken a tough stance on dyeing and finishing after seeing what these industries have done to the Chinese environment. Therefore, THE AGE OF CHEAP POLYESTER IS OVER.
We expect the impact of the crackdown on pollution in China to actually be evident in the2018/19 season in the cotton industry and will have an effect on prices by stimulating demand. Increases in world cotton mill use may be stimulated if the CotlookA Index falls to less than 75 cents per pound.