The impact of the pandemic tends to be polarized. What is the overall situation of China's industrial textile enterprises in the first quarter?

In the busy first quarter, enterprises in the medical and health care, safety protection, filtration and separation, nonwoven rolls, equipment, and accessories sectors of China's industrial textiles industry maintained a high confidence index. Especially nonwoven enterprises engaged in the production of materials for fighting the epidemic, they actively increased production lines, improved production processes, and enhanced production capacity. Some enterprises promptly switched to producing relevant supplies, ensuring the supply of medical protective equipment both domestically and internationally.

The impact of the COVID-19 pandemic on the industrial textiles industry is becoming increasingly polarized, with overall positive effects outweighing the negative ones. Enterprises producing epidemic-fighting materials are operating well, experiencing significant demand growth and abundant orders, while companies in other sectors are suffering varying degrees of negative impacts. Market research results indicate that businesses generally anticipate that, after the second quarter, as production resumes, major projects commence, and national policies and measures to support economic development are implemented, the industry's demand for infrastructure construction, environmental protection, and safety protection will recover. Globally, the demand for medical protective products will continue to grow, and businesses remain optimistic about their annual operating conditions.

The impact of the epidemic tends to be polarized

The overall operation of the industry is stable

In order to timely understand the operational situation of the industrial textiles industry in the first quarter, especially the orders, production, and sales of enterprises under the COVID-19 pandemic, as well as the enterprises' expectations for the whole year's development, the China Industrial Textiles Industry Association recently conducted a questionnaire survey on 240 enterprises. Among the 233 valid sample enterprises, they are from the fields of medical and health care, safety protection, nonwoven rolls, filtration and separation, thread and tape, military-civilian integration, fiber raw materials, equipment, and accessories, covering the entire industrial chain of industrial textiles.

Regarding the operating conditions of enterprises in the first quarter, 11.16% of the sample enterprises indicated that they were very good, 30.47% indicated that they were relatively good, and 38.63% indicated that they were average. Nearly 20% of the enterprises indicated that their operating conditions were poor, with nearly 4% indicating that they were very poor. After processing the operating conditions into an index, the industry's prosperity index for the first quarter was 63.7. The prosperity levels of the medical and health, safety protection, filtration and separation, nonwoven materials, equipment and accessories sectors were relatively high. Among them, the prosperity index of the medical and health sector, which is engaged in the production of epidemic prevention materials, reached 79.2, while the prosperity indices of the geotechnical construction, rope nets, lining cloth, and other sectors were below the break-even point (50).

In the first quarter, the industry's labor costs rose rapidly, while overseas demand and exports declined significantly. The domestic market demand index for the industry in the first quarter was 51.1, still in a relatively weak expansion range; the foreign demand and export indexes were only 39.8 and 35.1 respectively, and the production index was 41.6, all in a contraction range; the finished goods price index was 49.4, basically stable; the labor cost index was 79.6, in a significant increase range; the sales index and profitability index were both 46.1, in a contraction range, but with a small magnitude.
Due to the impact of the epidemic, 31.33% of the sample enterprises indicated that the epidemic had stimulated demand growth, while 21.03% reported a decrease in demand. 4.12% of the enterprises stated that the epidemic had postponed their company's demand and orders, but they expected to recover within the year. 6.44% of the enterprises indicated that the epidemic had no impact on their company's demand. Regarding overseas orders, 34.43% of the enterprises reported stable overseas orders, but 32.79% indicated that some orders had been canceled, and 8.2% reported a significant number of orders canceled. However, 9.84% of the enterprises also stated that orders had increased.
Regarding the shift in production to anti-epidemic materials, 20.6% of the sample enterprises were already engaged in the production of masks, protective clothing, and their raw and auxiliary materials before the epidemic. 31.76% of the enterprises indicated that they began to shift production to related anti-epidemic materials after the outbreak. 47.64% of the enterprises did not produce related anti-epidemic materials.
Regarding fixed asset investment, 66.09% of the sample enterprises indicated that they had new project investment plans in 2020. Due to the impact of the pandemic, among the enterprises with investment plans, 67.53% will proceed with their investment projects as planned, while 29.87% stated that they will postpone implementation and make a decision based on the impact of the pandemic. Only one enterprise indicated that it had canceled its investment plan.
Regarding the full-year expectations, 30% of enterprises indicated that domestic demand will increase by more than 10% throughout the year, 17.6% believed it will increase by 3% to 10%, 22.32% stated that demand will remain basically flat, while 31% indicated that demand will decline to varying degrees. After indexizing the domestic demand situation of enterprises, the annual domestic demand index of enterprises was 57.9, higher than the domestic demand index in the first quarter. The overseas demand index of enterprises was 43.6, higher than the overseas demand index in the first quarter, but still in the contraction range, indicating that the epidemic is spreading worldwide and enterprises hold a relatively pessimistic view towards the recovery of the global economy.
Regarding the main difficulties faced by enterprises, 52.36% of them believe it is difficult to expand overseas markets, 46.78% believe market demand has declined, and nearly 30% believe cash flow is tight. Other difficulties faced include transportation and logistics constraints, labor shortages, and difficulties in purchasing raw and auxiliary materials. However, insufficient market demand and financial constraints are the greatest challenges faced by enterprises.

The cluster's resumption of production is orderly and well-organized

Seeking benefits, avoiding harms, and maintaining market stability

Since the beginning of the year, there has been a persistent shortage of medical protective supplies and their raw materials, posing new challenges and demands for enterprises in industrial clusters. In the first quarter, enterprises in medical and health-related industrial clusters in Xiantao, Hubei, Changxing, Zhejiang, Xialv, Zhejiang, Yiwu, Zhejiang, Zhenzhou, Jiangsu, Xiaojiang, Zhejiang, Changle, Shandong, and Rudong, Jiangsu, have all expanded production to meet market demand.

Taking Xiantao City, known as the "Famous City of China's Nonwoven Industry," as an example, since the early days of the pandemic, Xiantao has swiftly completed a "1+6" layout in Pengchang Town, namely one main raw material enterprise and six medical protective clothing enterprises, to urgently produce "battle attire" for frontline medical personnel. Nowadays, over 300 nonwoven enterprises in Xiantao have all resumed work. In mid-February, Hengtian Jiahua Nonwoven Co., Ltd. urgently shifted its production to melt-blown nonwoven fabrics for medical masks. The company's daily output has reached over 20 tons, capable of producing more than 20 million masks. Moreover, the melt-blown fabrics meet the standards of 99% particle filtration and bacterial filtration, ensuring quality and quantity supply to the market. Nowadays, as the domestic epidemic situation continues to improve, Pengchang's nonwoven enterprises have immediately shifted to international supply of epidemic prevention materials. According to Zhou Zhihong, the Secretary of the Xiantao Municipal Party Committee, there are 146 self-operated export enterprises in Xiantao, with over 80% of nonwoven products mainly exported, and more than half of the enterprises have passed international product certifications such as ISO9002. Currently, the city's foreign trade order transaction volume has reached 500 million yuan, and it is expected to increase by over 40% in the later stage. Most enterprises have orders scheduled until mid-May. Xiantao will fully develop the "Four Bases and Two Centers," centered around the National Emergency Protection Material Reserve Base and the National Nonwoven Industry Innovation Center, to achieve an annual production of 20 million medical protective clothing items, 100 million N95 medical masks, and over 2 billion disposable medical masks.

In addition to the medical and health field, the environmental emergency monitoring field has also achieved positive development. The Ministry of Ecology and Environment's newly issued "Emergency Monitoring Plan for Responding to the COVID-19 Pandemic" stipulates that during the epidemic prevention and control period, the emergency early warning monitoring of air and surface water environments, as well as the application of air filtration and liquid filtration in hospitals and other units, especially the water quality monitoring of drinking water sources, are the focus of work. This provides a demand for technological upgrading and development for air and surface water environmental quality monitoring equipment manufacturing enterprises, environmental quality automatic monitoring operation and maintenance support enterprises, emergency monitoring plan data analysis platform enterprises, raw material supply enterprises, etc. Jiangsu Funing and Zhejiang Tiantai are two major industrial clusters that are important production bases for air and liquid filtration products. The improvement of environmental quality is inseparable from their products, and most enterprises in the clusters maintain an optimistic attitude. The relevant person in charge of the Funing cluster stated that after the epidemic, the market demand for nonwoven materials related to environmental emergency will further increase, and there will be a new positive change in the perception of such products, which will play a new driving role in the development of the industry.

The current epidemic has also had a significant impact on some enterprises in non-protective equipment clusters. In the first quarter, due to the local government's requirement for engineering enterprises to postpone resuming work, the commencement of projects was directly delayed, which directly affected the overall project timeline and made it impossible to achieve as expected. Both the nonwoven equipment project in Zhitang, Jiangsu and the geotextile project in Lingcheng, Shandong, were affected to some extent. At the same time, due to the doubling of labor costs and logistics costs, as well as the impact of factors such as the shutdown of the enterprises they serve, service and production clusters, such as transportation enterprises, monitoring platform enterprises, and exhibitions in the Anping cluster in Hebei, have been affected by the epidemic and have delayed or been unable to commence work, resulting in insufficient performance of major enterprises.

Orders for medical and healthcare enterprises surge

Face challenges with a down-to-earth attitude

In the first quarter, medical protective supplies such as medical masks and protective clothing became the "hard currency" in the global market. From initial chaos to now being able to handle the situation with ease, industrial textile enterprises, leveraging their comprehensive upstream and downstream industrial chains including raw materials, equipment, and finished products, quickly provided strong support for epidemic prevention and control, while also achieving self-value enhancement. Especially for production enterprises related to medical and hygiene products, their operating performance saw significant growth.

The recent performance forecast for the first quarter of 2020 released by Xinlong Holding (Group) Co., Ltd. has attracted widespread attention within the industry: Xinlong Holding is expected to earn a profit of RMB 40 million to RMB 60 million in the first quarter, representing a year-on-year increase of 1027.94% to 1591.9%. Xinlong Holding's meltblown nonwoven fabric workshop, which produces materials for bacterial filtration in masks, has been operating 24 hours a day since the early stages of the pandemic to ensure the supply of raw materials to downstream mask manufacturers. "The company has two meltblown production lines, and the meltblown filter fabric produced daily can supply more than 4 million medical masks for downstream production. In addition, the SMS nonwoven fabric produced daily can supply approximately 150,000 sets of protective clothing for downstream production," said the person in charge of Xinlong Holding. Due to the impact of COVID-19, the market demand for raw materials of medical and hygiene protective products produced by the company has increased. As a key enterprise for epidemic prevention and control, the company has fully cooperated with the epidemic prevention and control work, working overtime to organize the production of raw materials for protective materials needed during the pandemic, resulting in a significant increase in production and sales. Now, Xinlong Holding has begun to resume export orders for meltblown products, which are mainly sold to European and Southeast Asian countries. Spunlace products are mainly exported to Europe, Australia, Japan, Southeast Asia, the United States, and other countries and regions.

Xiamen Yanjiang New Materials Co., Ltd., whose main business involves PE perforated films and perforated nonwoven fabrics used in sanitary napkins and diaper topsheets, has started selling nonwoven fabrics since February. According to the first-quarter pre-announcement released by Yanjiang, the company's net profit for the first quarter is expected to be RMB 36.2871 million to RMB 38.9103 million, up 315% to 345% from the same period last year. Among this, the confirmed revenue from the sale of civilian meltblown nonwoven fabrics is approximately RMB 26 million, with a profit of approximately RMB 17 million, accounting for about 45% of the total profit. The sales revenue from PE perforated films and perforated nonwoven fabrics reached approximately RMB 248 million, with a profit increase of about 140% compared to the same period last year. The person in charge of Yanjiang stated that the company's current daily production capacity for meltblown nonwoven fabrics is 14 tons, and the monthly production capacity is 420 tons. Due to limited market supply in the first quarter, the company's production of meltblown nonwoven fabrics has been in short supply, which is also one of the main factors contributing to the company's performance growth in the first quarter. He also indicated that, based on the current situation, the demand for meltblown nonwoven fabrics will remain high in the first half of 2020, which is expected to have a positive impact on the company's performance.

Influenced by factors such as the surge in demand for medical and hygiene products both domestically and internationally, the substantial market dividend, and government encouragement policies, enterprises in related fields have been continuously expanding their production capacity. Faced with the current market situation, it is particularly important to adjust one's mindset. Industry experts suggest that, judging from the current situation, the demand for nonwoven materials related to medical and hygiene products will remain high in the coming period. However, due to high uncertainties such as the price of meltblown nonwoven materials, the duration of the COVID-19 pandemic, and market supply, the market trend is not very clear, posing certain investment risks. Enterprise operators should promptly adjust their development plans, focus on differentiated development, avoid rushing headlong into mass action that disrupts market order, and more importantly, steer clear of low-end competition.

After editing

Comprehensively analyzing the operational situation of industry enterprises in the first quarter, the pressing issue for the industry to ponder is how to transform this crisis into an opportunity for the development of the industrial textiles sector, and facilitate its transformation and upgrading.

Due to the impact of the pandemic, the future upgrading of industrial textiles in fields such as medical and health care, environment, emergency monitoring, and emergency response is imperative. Relevant enterprises should actively explore opportunities for industrial upgrading and development. In the long run, despite the fact that over 90% of enterprises in the country are currently small and micro enterprises, which are greatly influenced by the industry environment, enterprises should still focus on continuous technological innovation to achieve their own sustainable development. After this pandemic, industry-related enterprises are bound to accelerate the process of mergers and acquisitions. It is necessary to establish national emergency reserves, increase acquisition efforts, balance storage and capacity release, improve industrial chain support, and form a self-improving and larger-scale industrial cluster. This is an issue that local governments and enterprises in the cluster need to consider in advance.

Journalist's viewpoint

Brand endorsement

Enhance customer influence of nonwoven enterprises

Branding can facilitate order management for enterprises, enabling them to attract more brand loyalists. Furthermore, it aids in market segmentation, fosters a positive corporate image, and bolsters the competitiveness of the enterprise. Although product branding incurs additional costs and expenses for enterprises, most companies make the right branding decisions after careful consideration.

Currently, market competition has evolved to the stage of "brand war". Investors in the nonwoven industry also recognize that brand is an important component of a company's most valuable assets.

At the second China International Import Expo held in November last year, Winner Healthcare and DuPont (China) signed a strategic cooperation agreement, under which both parties will engage in in-depth collaboration in various aspects such as dual branding, new materials, and new technologies in the field of medical personal protection. Winner Healthcare is a major exporter of medical dressing products in China, providing a large quantity of disposable medical supplies to various parts of the world every year and serving as a benchmark enterprise in China's medical dressing industry. DuPont China Group Co., Ltd. is the first wholly foreign-owned investment company approved by the Chinese government, committed to becoming one of the global drivers of innovation. The strategic cooperation between Winner Healthcare and DuPont's Tyvek brand aims to promote its protective clothing series, which shields medical staff from viruses such as SARS, H7N9, and Ebola, to the hospital market, with the goal of enhancing the protection level in the hospital infection control industry.

Product innovation is a crucial aspect of Kimberly-Clark's "2022 Strategy". The newly launched "Huggies Special Delivery" brand ultra-premium plant-based diaper product by Kimberly-Clark is a highly soft diaper made from plant-based materials, specifically designed for babies. It maximizes comfort and ensures the skin health of babies. Despite the product being priced 40% higher than other premium Huggies products, it has not affected its sales and has even driven the profitability of Kimberly-Clark's related businesses.

The Turkish nonwoven fabric producer Mogul Group boasts a stable customer base for medical nonwoven fabrics, thanks to the various production technologies it employs and its long-standing brand strategy. Today, the company's Mopet blood filtration nonwoven materials and Madaline medical packaging materials enjoy a high reputation in the international market. Serkan Gogus, CEO of Mogul Group, stated that despite the short lifespan of disposable nonwoven materials, related products can bring good cost-effectiveness, and high-value-added products will also yield high returns. Brands are undoubtedly very important for enterprises, and the development status of a brand directly affects the development status of the enterprise. Only by operating the brand well can the enterprise have better development prospects, and related products will be more attractive.

Industry analysts believe that despite nonwoven materials being consumables in most cases, brand building remains crucial. Nonwoven material production enterprises must enhance product quality when building their corporate brands. No matter how excellent the brand marketing is, it will be in vain without high-quality products to meet consumers' psychological purchasing needs. Brand marketing can enhance consumers' ideological satisfaction, but it still relies on product quality to win repeat purchases and word-of-mouth promotion. Only in this way can a brand truly be established in consumers' hearts. At the same time, enterprises must continuously improve their management system, production operations, and after-sales service system during the management process to ensure the continuous development of the brand.