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2010-11-9
What is "crazy"
Price increase and crazy are two words frequently heard in chemical fiber industry recently.
| Product |
1-Nov |
8-Nov |
Increase |
Growth rate |
| ZCE cotton futures |
28510 |
32970 |
4460 |
15.64% |
| PTA futures |
9162 |
10582 |
1420 |
15.50% |
| VSF 1.5D |
24600 |
29300 |
4700 |
19.11% |
| PSF 1.4D |
13100 |
19100 |
6000 |
45.80% |
Viewed from the above table, price increase of cotton textile materials reaches at above 10% within one week, which is rarely seen even in a month in past years. The following chart also represents a straight upswing recently.
However, the market is not "crazy" at all.
At the end of 2009, China's GDP was 33.54 trillion yuan, 92 times of that in 1978 (364.52 billion yuan). Meanwhile, M2 soared to 60.62 trillion yuan at the end of 2009, 705 times of that in 1978 (85.945 billion yuan). China's M2 was 38.72 trillion yuan in Aug 2007, but it skyrocketed to 68.75 trillion yuan after three years, nearly doubled.
Textile as labor-intensive industry agglomerates a lot of labor value. Some textile products are made from crude oil while others occupy large amount of land. Under such money supply, textile industry kept relatively stable in recently more than ten years. That is real "crazy".
Economist put forward Impossible Trinity. That is to say, two items of “ensure growth, adjust structure and repressed inflation” can be satisfied simultaneously. Since the implementation of reform and open policy, China has focused on ensure growth and repressed inflation, so there will be many inharmonious factors in economic structure and distribution pattern. With the expanding inharmonious manifestation, China starts to change development thoughts, which is reflected in the twelfth five-year plan. Thus, the goal of repressed inflation will be affected. The influence of inflation strengthens recently and experts say that we should appropriately increase the tolerance of inflation.
Textile market starts to see uptrend under such background. It can be said that the rapid price increase of textile industry is the accumulation of the past over ten years. It is noteworthy that US continues to implement loose monetary policy, which intensifies the influence of inflation. Market participants are much more bullish about crude oil and its related products that we underestimated before, which leads to an overall surge in textile industry.
Though the big upswing of chemical fiber and textiles is beyond expectation, it is inexorable phenomenon. Consequently, it is not appropriate to describe with the word "crazy".
Author： Kevin
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