Winners and Losers – Rieter’s examination of spinning mills and the machinery market

Martin Werder, Rieter’s Senior Marketing Manager Machines & Systems

In the latest published customer magazine of Swiss Rieter, we found an excellent examination of spinning mills and the machinery market. The guest author of the feature is Martin Werder, Rieter’s Senior Marketing Manager Machines & Systems. We are delighted to publish his evaluations, and we at TextileFuture are convinced that this is some food for thought for our readers

What is a driver of growth for the market and what is not? What has been the effect of the liberalization of the textiles trade? Who are the winners, who are the losers? What changes are taking place in terms of fibre types and final spinning processes? A look back at the last 30 years that sheds light on the future.

The spinning machines market is very volatile as many factors affect business. Nevertheless: Indicators point to a boom. The following analysis, which provides deep insights into the textile market, also shows this.

Two factors are causing the rising demand for textiles: firstly, the annual one percent increase in population, and secondly, rising prosperity, which is assessed on the basis of gross do- mestic product (GDP).

The greatest demand for textiles exists in developed countries in North America, Europe and Asia. Here, GDP per person (adjusted for purchasing power) is over USD 45000; it is, therefore, very high. This is also reflected in terms of annual fibre consumption, which is nearly 30 kg per person (Fig. 1).

 

By contrast, developing countries have an annual GDP per person of USD 6200 (India) or USD 15000 (Latin America). Purchasing power is low. Annual fibre consumption is only 5 to 8 kg per person. Emerging countries are practically in the middle range. With a GDP of USD 15000 to USD 25000 USD, annual fibre consumption in these countries is 12 to 16 kg per person.

Demand for textiles will continue to grow in developing and emerging countries. This shows the GDP growth for 2016 (Fig. 2). According to this, considerable growth of five to 7 % has taken place. In developed countries the figure was between just one and 2 %.

China is the exception. In the last 30 years the People’s Republic has taken the step from developing country to emerging country and by now almost becoming a developed country

With a large population, good wages and a growing economy, the demand for textiles is extremely high there.

Rising prosperity, declining importance of the spinning

Rising prosperity means higher labour costs. Consequently, the labour-intensive production of the clothing industry is migrating to countries with lower wages. The primary textile industry (spinning, weaving, knitting, textile finishing) then follows with a time delay. This causes the importance of spinning to decline in developed countries. The installed spinning capacity per person in relation to GDP shows this (Fig. 3).

In contrast to the final consumption of textiles, the installed spinning capacity behaves precisely inversely proportion- al. Developing and emerging countries have 20 to 70 spindle equivalents* per 1000 inhabitants, while developed countries have fewer than 10: the weaker the economy, the more important the spinning industry is. However, there are two exceptions: Turkey – as a gateway to Europe – has the highest spinning capacity in relation to population. Africa and the Middle East have the smallest spinning capacity in relation to population, while simultaneously having a low GDP. Consequently, long-term growth potential there remains purely theoretical for the time being. In particular, the major social, political and ethnic conflicts in these regions hinder economic development.

Winners and losers of globalization

The spinning capacity of developing countries and emerging countries (not including China, India and Eastern Europe) al- most doubled from 53 million to 90 million spindle equivalents in the last 25 to 30 years. By contrast, the spinning capacity of industrialized countries shrunk from 40 million (1992) to 10 million.

The growth of the spinning industry in China is noteworthy (Fig. 4). From 45 million spindle equivalents in 1992, the industry grew to over 100 million spindle equivalents by 2017. Growth was particularly robust in the years following China’s entry into the World Trade Organization (WTO) in 2002 and the full liberalization of the textiles trade in 2005. However, since 2012, a sharp increase in labour costs led to a decline and the relocation of spinning capacities to countries such as Indonesia and Vietnam. In particular, many Chinese spinning mills emerged in Vietnam in recent years (Fig. 5), meaning Vietnam is showing the greatest growth dynamic. Spinning capacity rose eightfold from 1992 to 2016 and grew from one million spindle equivalents to over eight million.

Increase in polyester fibres and viscose fibres

Fibre types processed on spinning machines have also under- gone major changes in the last 25 years. With a share of over 75 %, cotton was the main fibre type in 1992. Polyester fibres and viscose fibres nearly doubled their share by 2017, to the detriment of cotton (Fig. 6). However, cotton will re- main the dominant fibre for short staple spinning in future with a share of 50 to 55 %.

Compact spinning in the fast lane

The market now offers four different spinning processes for short staple spinning. Ring spinning is the oldest techno- logy. It is – and remains – the dominant spinning process. With the fall in significance of the spinning industry in the USA and Europe, rotor spinning has declined somewhat proportionally. However, compact spinning, which was still in- significant in 1997, has made a triumphant advance in the last 20 years. By the end of 2017 it is expected to grow to 16 % of total spinning capacity, overtaking rotor spinning (Fig. 7). A 2.5 % share of installed capacity is forecast for air-jet spinning for 2017. This is increasing by 0.3 to 0.4 % annually.

75 % of investments in spinning machines directly or indirectly replace existing spinning mills that are more than 20 years old. Only 25 % of spinning machine investments made each year are to cover the current and immediate growth of textile consumption. The two demand factors for spinning machines – replacement demand and growth investment – are subject to strong fluctuations. The overall business cycle and price fluctuations for fibre raw materials as well as yarn prices are triggers for this market volatility.

If an economic boom and sharply rising yarn margins occur simultaneously, demand for spinning machines booms. This phenomenon was particularly prevalent from 2009 to 2011.

Two important indicators for investments in spinning mills show the volatility of the market (Fig. 8): firstly, the global economic situation exemplified by the OECD Business Confidence and, secondly, the average gross margin for cotton yarns (basis: count Ne 20 and Ne 30, five main producing

The financial crisis of 2008/2009 was a pronounced negative turning point with a rapid economic recovery. Business confidence was particularly low during the financial crisis. The demand for spinning machines quickly ground to a halt.

Floods in Pakistan in the summer of 2010 reduced the cot- ton crop. India responded to the resulting shortage on the cotton market with protectionist measures and by limiting cotton and cotton yarn exports. At the same time, China imported large quantities of cotton yarn, meaning that cotton prices and yarn prices exploded. The gross margin on cotton yarns soared to record levels. The concurrence of economic growth and increasing margins was the perfect recipe for the subsequent investment boom in new spinning mills.

Innovations make replacement investments attractive

Each new Rieter machine creates customer benefits such as higher productivity, reduced energy consumption and in terms of optimal fibre utilization.

Rieter cards serve as an example: In the last 30 years, the maximum production of carded yarns almost quadrupled. In 1997, the C 4 card produced 75 kilograms per hour, while up to 280 kilograms per hour is now possible with the current C 70 card. For combed yarns, production output more than doubled from 43 to 95 kilograms per hour (Fig. 9).

Therefore: High innovation rates make replacement investments attractive and stimulate the market. And: This can be relied upon.

 

www.rieter.com