Where in the world to invest in a spinning mill?
By Guest Author Edda Walraf
For a successful choice of location for an investment in a spinning mill a number of factors are decisive. The feature written by Guest Author Edda Walraf, Head Marketing Machines & Systems at Swiss Rieter. TextileFuture is very proud to present to you this excellent feature, highlighting the five most important factors in selected countries. It demonstrates how important the right partner is for the long-term success of the investment.
Both the world’s population and disposable income are growing side by side. Hence the consumption of fibres is increasing. The textile industry is growing and is attractive to investors. But where should they invest? For the answer, an entrepreneur must be aware of the five factors that influence the risks and opportunities of his investment. The analysis by the ITMF (International Textile Manufacturers Federation) Table 1 shows that raw material and energy have a dominant influence on yarn costs. Other factors are important for long-term success: yarn manufacturing costs, the availability of trained personnel and market access.
Factor 1: Raw material
The availability of cotton and synthetic staple fibres is not a problem today. In the 2013/2014 season, for the third time in a row, the main production countries supplied more raw material than what was processed by the spinning mills. In the case of cotton, in particular, 87 % of annual consumption is held in storage throughout the world. Since as an agricultural product fibres are not subject to the rules of WTO, the World Trade Organisation, there are regional differences in fibre prices.
Table 2 shows the long-term comparison of cotton costs
In India, the raw material is cheaper than in other countries. The prices fluctuate less than on the international market, making planning easier. The price of the raw material is the crucial factor for the manufacturing costs of a yarn. As the prices of synthetic fibres usually follow cotton, this supports an investment in India.
Factor 2: Energy
Many studies show the great importance of energy consumption in relation to yarn manufacturing costs in spinning. A global look at average costs reveals that the price of energy has increased in some countries, at times significantly (Table 3). An exception to this is the United States, which today has very low energy costs due to fracking.
Consumption depends on the spinning technology, age, condition and producer of the spinning machine, raw material and yarn count. The costs depend on consumption and local prices. A precise comparison on the basis of the planned product range is worthwhile in any case.
Factor 3: Workforce
Tables 1 and 4 show that in the typical producing countries wages play a subordinate role in yarn production.
Rather, the decisive issue is the availability of well-trained personnel. Automated spinning machines not only solve this problem, they also increase efficiency and yarn quality at the same time.
Automation can be easy. For example, Rieter reduces personnel expenditure by means of continuous, 1000 mm large can sizes in the spinning preparation process. In addition to reducing personnel expenses, the roving bobbin transport system SERVOtrail also cuts down errors caused by manually damaged roving bobbins.
Factor 4: Market access
In the global environment of the textile industry, the costs between manufacturer and customer are often underestimated: transportation, exchange rates and the hedging thereof as well as customs duties. The investment decision must take account of the costs for the entire textile value chain. Growing domestic markets are attractive because exchange rate risks and customs duties do not apply and transport costs are low. Large, growing markets such as China and India are attractive for this reason. Good relations in mutual trade, which allow simplified, duty-free imports, influence the decision regarding location.
The website of the World Bank facilitates global comparisons of container costs and the quality of logistics. The WTO provides comprehensive customs tariff tables. Rieter, for example, published a practical comparison in the customer magazine link no. 65 (Fig. 5). The global route of US-fibre to finished product on the sales counter in the United States determines the total cost. The difference between the least expensive and the most expensive value chain was almost 50 %.
Globalisation blurs the differences
The increasingly global world will steadily even out the differences between countries. Prices are formed in global markets, education is improving globally and worldwide competition in markets creates a network of free trade agreements. The emerging producing and consuming countries in Asia are making great efforts to improve logistics. Short delivery times and reliable delivery dates are an important prerequisite for the fast-moving products of the textile industry.
Factor 5: Yarn manufacturing costs – the sustainable success factor
Globalisation will bring the conditions for competition into alignment. The location of the investment is not crucial for success. Figure 1 shows how close the competition is if we compare yarn manufacturing costs alone, excluding the raw material. The spinner who can offer the lowest manufacturing costs with good, consistent quality establishes the most sustainable position in this competitive global marketplace. The investor best achieves this advantage over the competition with a reliable machine supplier – a partner who designs and installs the entire system from fibre to yarn and supports its operation. A supplier who consistently offers the best price-performance ratio and supports low production costs over the entire service life of the product.
Rieter is recommended to global entrepreneurs as the best guarantee for a sustainable, successful investment, anywhere in the world.
This feature forms also part of Rieter’s Link, the customer magazine of Rieter No. 67 / 2015 / EN where other interesting articles can be found. It can be downloaded by clicking on the first link below.
Production Locations: What are the current trends?
There is much discussion at the moment within the worldwide interconnected textile and clothing industry about structural shifts of production locations. Purchases of textile machinery and investments in new technology can be regarded as harbingers of this development. Bremen Cotton Report (Issue No. 31/32 – August 13, 2015) interviewed Dr Christian P. Schindler, Director General of ITMF, the International Textile Manufacturers Federation and TextileFuture is offering you this interview as an addition to the feature of our guest author’s findings
Bremen Cotton Report: Which are the countries with the greatest investments in textile machinery?
Dr Christian P. Schindler: According to the ITMF-publication “International Textile Machinery Shipment Statistics”, about 109 million new short fibre spindles have been delivered cumulatively in the past 10 years, 103 million or about 94 percent of which went to Asia. The development for rotors was not quite as distinct. Of about four million newly delivered rotors worldwide, about 3.1 million or 77 percent were installed in Asia. In the section of weaving (shuttleless looms), 779,000 new looms were delivered between 2005 and 2014, of these, about 723,000 or about 93 percent were taken into operation in Asia.
Are there shifts?
“Over the past ten years, there have been no significant shifts. Asia as a region and China as a country were the biggest investors in 2005, and so they were last year. Over that period, Asia´s share declined only slightly from about 96 percent to 91 percent. China, on the other hand, has lost some of its dominance. Whereas 64 percent of all short fibre spindles were delivered to China in 2005, by 2014 it was “only” 45 percent. While investments in the second biggest textile country India fluctuated around 2.5 million spindles per year between 2005 and 2014, other countries raised investments significantly on a lower level.
The rise was especially strong in Vietnam, Indonesia, Turkey and Uzbekistan.”
What is going on in developing countries, what in highly developed countries?
“The economically developing countries in Asia are still ranking among the leading export nations, especially in the clothing sector.
According to the World Trade Organisation (WTO), China, Bangladesh, Vietnam and India were the leading exporters in the clothing sector in 2013. In recent years, though, the Asian developing countries have also become more and more important as consumers of textiles and clothes, a trend that will continue. Textile and clothes markets in the highly developed countries continue, to be important sales markets. Europe and the USA had to pull back from the large textile and clothes business several years ago. Those companies still active in these segments have further specialized and provide for specialities and niches.
Furthermore, a great number of textile and apparel companies has newly concentrated on technical textiles.”
Is there a tendency in Europe or the USA to adjust production closer to the market?
“The tendency is noticeable. The USA register an – although slight – rise in their clothing production, which, however, takes place on a low level. Partly it is about production units that are being switched back to the USA. The largest part, though, seems to be a supplement for the offshore production in order to be able to react quicker to in-country changes of fashion or to procure supplies. Similar reasons also explain the shifting of production units to Europe. Nevertheless, the region Asia will remain the most important region in the sector of textile and clothes production for years to come.”
In global terms, are investments in new, more productive technology increasing?
“There is a trend toward newer and more productive technology. Discussions of the ITMF held with member associations and companies show that there are several reasons for this. On the one hand, there is an ongoing trend towards an automation of production processes. This trend is especially distinct in industrial countries, as the absolute labour costs are high in comparison to competing countries in Asia and South America. But investments into the automation of production processes are also increasing in the countries of Asia. The ITMF study “International Production Cost Comparison“ shows that wage costs in China have significantly grown over the last few years, although on a low level, and that China´s demand for an automation of production has grown. In countries like Japan or Germany, the population growth will decrease in the next years. Therefore, the supply of specialist workers will also tend to decrease. It is important to see that many investments into new machinery also serve to expand existing capacities.”
Contamination of cotton are factors in yarn production. What kind of contamination is still common and what is the impact?
“For 25 years ITMF has conducted global biennial surveys with spinning mills (Cotton Contamination Survey), in order to determine the different kinds of contamination as well as their strength. The most important source of contamination in 2013 was organic matter (leaves, feathers, paper, leather etc). Other sources were yarns or textile fabrics made of cotton or manmade fibres.
At this point it should be mentioned that the requirements of the spinning mills regarding cotton quality have increased over the past decades. The reasons for this in turn are the increased requirements of retail chains and brands. A contaminated yarn can cause enormous follow-up costs, but they come up only at the finishing stage, for example a yarn or a textile fabric has an uneven dyeing. For these reasons, the mills must significantly invest in cleaning processes.
However, since in most cases contamination cannot completely be identified and removed, even more the cotton quality in relation to contamination is of considerable importance.”
What will be the main topics at the ITMF annual meeting in September?
The main topic at this year´s ITMF annual conference in San Francisco will be “Intelligent and Responsible Production from Raw Material to the Final Consumer”. So, many topics will revolve around questions like how must the textile value chain be organised globally and regionally under the prevailing conditions in order to fulfil the consumers´ demands. Economic, social and ecological aspects play an equally important role for this. These aspects will be raised in the various series of lectures and discussions. The series of lectures about fibres (Fibre Session) will deal with these aspects as will the ones about the value chain (Textile Value Chain), about retail and about e-commerce (E-Tailing) or about technical textiles (Smart Textiles).