2008 promises to be an eventful year by any standards we have seen. The textile industry is faced with several challenges globally and locally as we usher in the New Year.
Crude Oil Prices has remained high in the 90’s since the last quarter of 2007 and raw cotton prices are also around 70 cents /pound for already over half a year as compared to low 50 cents/pound over a year ago.
This has happened despite downstream yarn and garment prices remained unchanged during the whole period. This evidently points to an excess capacity situation in the textile industry all over the world.
The following scenario is expected to prevail during the course of the year affected by both international and local events:
1. Economy slowdown in the US economy which started off with the “subprime loan issues” in the US further lowering the textile demand.
2. China will integrate fully into the WTO system during 2008 and is expected to export more to the US.
3. Oil prices will remain high or increase even further due to the increasing demand for energy from China.
4. Fibre prices will remain high at this level at least until the new crop in August/September.
5. Reduction of foreign workers dependence as proposed by the government will increase production wages substantially.
6. Expected fuel price increase locally after the general election in March will trigger a corresponding increase in transportation rates.
7. Cost of living (after removal of government subsidies) will increase resulting in a general demand in wage adjustments.
2008 promises to be a very challenging year indeed.
However the following changes that might happen and will mitigate the above negative factors and bring in new life to the textile industry.
1. Conclusion of the Malaysia – US Free Trade Agreement (MUSFTA).
2. Inflationary pressures have finally caught up in China resulting in price and cost increases reducing China’s competitiveness.
3. A general “shake out “in the global textile industry weeding out inefficient producers.
4. More control and regulation enforcement in China like what it has done to those “polluting” industries leaving those in compliance to survive and prosper.
5. VAT implementation after the Malaysian General Election to bring in a better system of tax administration for the manufacturing industries.
Again to survive we have nevertheless have to work hard and convey to the government of the day what needs to be done in order for the textile industry to stay afloat.
