Garment orders up, but firms are worried

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Orders for 2011 are soaring and prices are higher, but garment firms are wary.

Their worry, especially in undertaking FOB (Freight On Board) contracts, is that the increase in prices might not match increases in the price of cotton.

Some exporters said prices under FOB contracts have jumped an average of 10-15 percent over last year, while those under outsourcing had risen by 3-4 percent, and many firms have booked orders through the end of the second quarter of next year.

According to the Vietnam Textile and Apparel Association (VITAS), the industry is expected to reap export revenues of US$11 billion this year, up 22 percent from 2009.

By early December, garment firm Ho Guom had signed contracts through the end of next April valued at around $10 million for a year-on-year increase of 30 percent. Under the contracts, 2.4 million products, mainly jeans, shirts, and jackets, will be shipped to the US and the EU.

Phi Ngoc Trinh, the firm's vice general director, said: "Demand among buyers' is very large, so we were able to choose orders with good prices," he said.

Do Dinh Dinh, general director of the garment firm Hung Long, said demand for Vietnamese garment products from big importers like the EU and the US was soaring. Many customers have turned to the Vietnamese market after China increased its production prices to serve salary increases for its employees.

"There are too many orders for garment firms to fill," he said. "Prices of outscoring orders' have increased by 3-4 percent."

Garment firm Phuong Dong has signed contracts to export five million garment products by the end of next May. The firm's vice general director Le Thi Thanh said: "The number of orders has skyrocketed, so we have to balance the number of contracts we sign with our manpower."

Pham Xuan Hong, vice chairman of the Ho Chi Minh City Association for Garment-TextileEmbroidery-Knitting (Agtek), said Vietnam's garment and textile export may continue to expand next year as its main rivals, such as China and India, are reducing their production. The countries are facing labor shortages in the garment and footwear industries because of low salaries, he said.

If China reduces its export volume by 15 percent, the world's supply will be affected, he said.

Profit fears

In the context of soaring prices of cotton, VITAS has warned its members to carefully consider contracts before signing to avoid big losses as the increase in export prices fails to keep up with that of materials.

Cotton prices now stand at some $3.1-3.4 per kilogram, double that of early this year. According to experts, the cotton price hikes are partly because India, the world's second biggest cotton exporter, reduced shipments to serve domestic production. Meanwhile, China, the world's biggest cotton user, had a bad harvest due to natural disasters, so it imported an additional 800,000 tons of the material to offset the lower yield.

Vietnam's cotton output now meets only 5 percent of its demand, so it has to import most of the material for local

production, mainly from the US, India and Africa. It is estimated that Vietnam will import a total of 370,000 tons of cotton in 2010, up from 300,000 tons last year, according to VITAS.

Nguyen Xuan Duong, general director of garment firm Hung Yen, said enterprises are facing difficulties because of increasing input material costs, although they have more chances to choose markets, customers and products for their exports. "Thus, it is difficult for firms to gain high profits."

According to some experts, cotton prices in the world market are expected to continue to rise next year due to an increase in imports as well as speculation in the market. The imbalance between the supply and demand will also be a factor in the price hike.

Countries with huge capital sources and strong demand have strengthened imports of cotton as reserves, but Vietnamese firms cannot undertake such measures.

According to the VITAS, local firms can only import cotton about three months in advance, as they need to quickly recoup capital for production.

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