Increasing domestic energy prices could deliver another blow to China's textile industry, already hurting from a strong yuan and rising labor and raw materials costs, an industry analyst has warned.
Power price rises would further squeeze profit margins of the textile industry, a big user of electricity, as it was hard to pass on the rising costs, Wednesday's China Securities Journal quoted Wang Qianjin, analyst with Webtextiles.com, as saying.
The site is run by the Shanghai Setways Information Consulting Co., which covers the textile industry.
The National Development and Reform Commission earlier this month raised the benchmark retail prices of gasoline and diesel oil by 16 percent and 18 percent to 6,980 yuan (997.1 U.S. dollars) and 6,520 yuan per ton, respectively.
This translates into mark-ups of 0.8 yuan and 0.92 yuan per liter for gasoline and diesel oil at filling stations.
Also, retail electricity prices will rise by 0.025 yuan per kilowatt hour from July 1, up 4.7 percent on average.
That increase, tiny as it sounds, would cost textile companies 3.75 billion yuan annually, or 3.2 percent of the sector's 2007 profit, according to Webtextiles.com.
Meanwhile, rising fuel prices will further push up raw material prices and transportation costs, said Wang.
Industry experts said every rise of 1 percent in the yuan would cause a 2 percent to 6 percent drop in textile industry profits. The yuan has risen more than 6 percent against the U.S. dollar so far this year.
The industry's profit margins averaged 3.9 percent last year, according to a survey by the China National Textile and Apparel Council early this year. But two-thirds of the companies surveyed reported an average profit margin of only 0.62 percent.
(Xinhua News Agency June 25, 2008)