Textile and Apparel: Export growth slows down in the fourth quarter
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In the first eight months of the year, the textile and apparel industry witnessed a strong rebound in exports, driven by increased demand and rising prices. The cumulative export growth reached 23.75% year-on-year, maintaining a robust pace that aligns with our previous expectations for the sector’s performance. While we anticipate a moderation in export growth during the fourth quarter, this slowdown is not indicative of a decline but rather a sign of a gradual recovery. The overall trend remains positive, and we continue to highlight key players in the printing and dyeing, auxiliary materials, and yarn production sectors as investment opportunities.
From January to August, the spinning service segment experienced significant growth, fueled by higher demand and price increases, meeting our forecasts. China's total textile and apparel exports amounted to $129.804 billion, reflecting a 23.75% year-on-year increase. Textile exports totaled $49.515 billion, up 32.29%, while apparel exports reached $80.289 billion, growing by 19.02%. This continued momentum was largely driven by two factors: increased orders from the second quarter and higher export product prices.
The slowing growth rate in textile exports suggests that the fourth quarter may see a deceleration. However, this is expected given the global economic conditions. In the first seven months of 2010, the global textile industry was on an upward trajectory, with textile exports outpacing apparel exports for ten consecutive months. By July 2010, textile exports had reached $42.8 billion, representing a 10.59% increase compared to the same period in 2008. In August, textile exports rose to $6.678 billion, with a year-on-year growth rate of 29.38%, down from July’s 42.24%. This decline reflects reduced consumer demand in Europe and the U.S., which has led to a slowdown in the global textile and apparel boom.
Despite the drop in EU orders, most export-oriented textile and garment companies have secured orders for the third quarter, ensuring continued export growth during that period. However, the reduction in orders will likely impact fourth-quarter performance. That said, due to the strong first-half growth, we still expect annual textile and apparel exports to grow by around 16%.
As the industry recovers, certain sub-sectors are worth noting. The printing and dyeing segment, long considered a bottleneck due to environmental concerns, has been restricted since 2008. With limited new approvals and no capacity expansion, existing companies in this space are well-positioned to benefit from the industry's gradual recovery. Key listed firms in this area include Airline and Zhonghe.
Additionally, upstream segments such as yarn and grey cloth producers are showing strong performance. In 2010, manufacturers saw improved profitability due to rising prices of yarn and grey cloth. Although current prices have stabilized, future cotton price surges are anticipated, which could keep yarn and grey cloth prices elevated. This bodes well for the performance of listed companies in this sector, including Huamao and Huafu Color Spinning.
**Risk Warning:** A potential appreciation of the RMB could erode profit margins, while global economic conditions—especially in the EU—could directly impact order volumes. Investors should remain cautious of these macroeconomic risks.