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Giorgio Viganò speech on 2007 May European Silk Forum
Author:  admin     PublishDate:  2007-05-10      Hit:  5319
Giorgio Viganò speech
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SILK FORUM – FRANCE, May 3rd 2007


MARKET SITUATION AND SUPPLIES DEVELOPMENTS IN CHINA
(Giorgio Viganò – Società Serica Trudel SpA)



· Between 2006 and 2007 the scenarios of the silk business have been characterized by opposite situations.


· In order to understand what is happening this year, we must look back at the last quarter of 2006.


· The autumn cocoons production increased around 18% between 2005 and 2006.


· The pessimistic forecasts of the harvest were denied by the late autumn production, which brought final quantities to an increase.


· The price of the cocoons, supported by a particularly aggressive speculation, reached the top of RMB 1500 per 50 kg, which means a cost around 32,50 USD for the 20/22 4-5 A raw material.


· The strong fluctuations of prices and the unreliable quality of spring cocoons made the market incapable to afford high quotations which lead to a cut in demand and prices.
The Chinese export slowed down and 2006 ended up with significant decreases:

RAW SILK YARNS -38%
TWISTED YARNS -18,10%
FABRICS -15,16%

Also the quotations faced important reductions, for instance, for the raw silk it was -19%.


· 2007 presents a substantial contradiction: high prices of cocoons, still supported by speculation and big uncertainty on the sales both for export and Chinese internal need.


· In the very first months of the year, we noted a generalized reduction of the Chinese yarn and fabric stocks, with qualities hardly saleable on the European market.


· In the meantime, the Chinese Government decided to buy yarn from the Jiaxing stock market - fixing a basic price of 195 RMB per kg for 3A Sichuan – with the evident goal to guarantee the price stability in order to protect the cocoon producers.


· The purchase made by the Government was estimated from 5 to 6000 tons with deliveries until September 2007.


· The latest information shows that the Government has suddenly stopped purchasing, due to a lack of money, creating confusion on the market whose situation is still critical.
The interference of the Government was praiseworthy, under a certain point of view, but we must consider how much this big quantity of 6000 tons in a state body hands will weight on the future development of the market.


· Let’s drive our attention to the brilliant performance of the “schappe”, the only silk item which, after some years of depression, has consolidated in 2006 the trend it started in 2005 showing a positive forecast for 2007.
It is interesting to note how this product, despite the up and downs of the raw material prices, could maintain a logical price following the market needs while maintaining a good quality standard.


· The different kinds of fabrics, less affected by price fluctuations, pay in terms of quantity.
In our opinion the reduction in demand is due to a stylistic choice which is penalising silk for its chronic incapability to provide a fair quality and a technical renewal.


· To get back to the possible developments of raw materials for 2007, we consider some numbers as particularly significant: in the Zhejiang area we estimate that 1100 tons of autumn 2006 cocoons are ready to be spun but at high price, a limited quantity of fair quality 5/6A is both in spinning and weaving mills, and the distribution of eggs for the spring market around 10% higher than 2006.


· Apart from the weather conditions, compared to 2006 we estimate an increase in the spring harvest with a forecast of 850/950 RMB per 50 kg of cocoons.


· As a result of the above mentioned numbers we do not have an encouraging forecast in terms of prices for the next months.
“wait and see” has become a must for every good European, Indian an Pakistan buyer and we can only agree with them.


· Silk factories cannot stand these price fluctuations of the raw material anymore, either the quality standard is now checked with obsolete instruments totally inefficient for the present market requirements.


· Chinese policy of considering all silk yarn qualities by the same way will penalize the entire market.


· High level silk qualities need to be protected and promoted by appropriate marketing operations.
This production drives the market and creates the consumptions that we all wish.

· As I said before, the Chinese Government purchase action for protecting the price is remarkable but, a different result would have been obtained if they had fixed a price for 4/5/6A silks produced in the Zhejiang, Jangsu and Shandong regions.


· It would also be great for us if we could rely on the quality standards determined by the most recent machinery, Mr Gatti will go deeper into this subject in the last part of this Forum.
The impact on the marked would have a different weight with regard to the cocoon producers, twisting and weaving mills that will be protected by speculations and encouraged to keep an higher quality standard.


· The same problems are affecting the European and the Japanese consumers, as well as the reliable Indian producers and, most important, good Chinese weavers.
It would be suitable a common effort in underlying the contradictions of the present Chinese policy.


· Without a shared strategy, it will be difficult to imagine a future in the promotion of silk.

Source: European Silk Forum
 
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