Towel makers enter forward contracts and use alternative materials to cope with climbing outlay.
Suppliers of towels in China are improving worker efficiency, entering into forward contracts and boosting utilization of alternative materials. These measures enable companies to cope with the continuous surge in the cost of cotton, which is also affecting the personal care products industry.
Manufacturers, in particular those receiving increased orders after inquiries declined in recent months due to rising prices, pursue the first strategy by modifying the method of calculating employees' pecuniary compensation. Shanghai Skyshow Textiles Co. Ltd, for instance, now pays personnel according to the number of finished items, encouraging them to boost output. Since implementing the new system, the maker has improved productivity by 20 percent. The policy can likewise bring down prices as costs are reduced.
Several suppliers are evading further cotton rate increases by entering into forward contracts, where manufacturers and material providers agree on a value ahead of actual exchange. This way, the two parties safeguard themselves from unexpected surges in outlay and the resultant drop in sales. Towel makers participating in such arrangements can also accept smaller orders but with a longer turnaround time.
To illustrate, Shanghai Skyshow, which enters into these commitments, takes in purchases as low as 1,000 pieces and completes the transfer in 30 to 45 days.
Zhejiang Shongda Mfg Group Ltd, on the other hand, delivers its MOQ of 3,000 items within a month. It does not engage in forward contracts.
Several suppliers are exploring alternative materials, including bamboo, wood and soybean. The first, sourced mainly from Sichuan province, is the most popular choice. The grass costs slightly more but is regarded as high end, therefore boosting profit margins.
While cotton spending was at $2,700 per ton, rayon from bamboo went for $3,900. When the former reached $4,500, however, the substitute came to about $5,000 only.
Some companies, including Shanghai Skyshow, are utilizing chemical fibers. Besides absorbing water well, the synthetic inputs are 20 percent less expensive than cotton, and are commonly used in one-off designs and sports towels. These models account for 15 percent of the supplier's exports and output.
Sales of noncotton pieces increased in 2010. Shanghai Skyshow, for instance, received 20 percent more orders for such products last year. It expects 25 percent growth in shipment volume in coming months.
In contrast, inquiries for cotton towels have declined due to prices that climbed by 40 to 60 percent YoY in the previous period. From August to November alone, companies pushed up quotes more than 30 percent to keep from operating at a loss.
The continuous rise in material outlay is significantly affecting final prices because cotton accounts for 70 to 80 percent of total production spending in the line. The cost of the input soared in three months starting September 2010, during which it hit $1,900 to $2,700 per ton. At the beginning of November, the rate reached between $4,200 and $4,600, and peaked at $6,060 a couple of weeks after.
The 15 to 20 percent increase in labor expenditure brought about by countermeasures to the manpower deficit is exacerbating the situation.
Another reason for the slide in sales is suppliers' inability to accept large orders amid the cotton shortage. The country's output of the material dropped 5 percent in 2010, and will continue to decrease due to weather conditions.
The China government has given aid through a stock release, which mellowed cotton costs to $4,000 before the year-end. Nonetheless, some companies still expect another uptrend in 2011, with a predicted $4,500 rate to start the climb.
China suppliers offer an array of towels that can be categorized according to purpose, intended body part and pattern. There are models for home, hotel, beach, sports and gift use, and pieces for the hand, face, hair and body. Those belonging to the second group are called bath towels.
Plain and yarn-dyed, printed, embroidered, bleached and appliqu©d variants are likewise offered.
New designs are mostly gift items for promotional use, among which designs folded to resemble cakes are popular. Makers also carry options mimicking candies, ice cream, cartoons and flowers. Products are made of pure cotton and packaged in OPP polybags or PVC gift boxes. Prices are $0.15 to $3 per piece.
Compressed towels are also best-sellers and used as premiums. These are squeezed in very small containers, shrinking up to 80 percent less than their original volume. Many take the shape of cars and other vehicles. Models come in pure cotton or nonwoven fabrics, and go for $0.15 to $3.
Color-changing pieces are printed with pigment that shows a different hue when the temperature exceeds 30 C. The effect can also transform patterns. Products are quoted at $1 to $10.
Priced from $4 to $6, upscale towels are made of thick cotton cloths with a velvety touch. The selection includes beach and bath models processed with reactive dyes. The latter variants with jacquard or printed patterns can go for $10 to $15. Smaller and thinner alternatives are from $5 to $10.
The midrange segment consists of designs for the face and body listing at $2.80 to $4. Such versions are made of the same fabric and coloring materials as high-end versions.
Low-end towels are for the face, hands and body. The first type of models may go for below $1, while the other options reach $2. These products utilize thin textiles made of cotton or chemical fibers, and come in dark colors.
Joy Hope Int'l Ltd
Model: Sports Towel
Qingdao Xiyingmen Group Co. Ltd
Zhejiang Zhongda Mfg Group Ltd
Model: Towel 3
Note:This article was originally published by Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.
All price quotes in this report are in US dollars unless otherwise specified. FOB prices were provided by the companies interviewed only as reference prices at the time of interview and may have changed.
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