Fabric market to benefit from unprecedented VAT cut POLYESTER STAPLE FIBER MANUFACTURER

On Mar 15, Premier Li Keqiang mentioned that VAT would be reduced from Apr 1 in the answers to reporters’ request. VAT of cotton may be decreased 1% to 9% and that of cotton yarn and grey fabric may be revised down 3% to 13%, which will benefit textile enterprises. Thus, how much will it contribute to fabric mills?

As for OEC21S*OEC21S 108*58 63” twill per 10,000 meters, current mainstream price of grey fabric is 7.2yuan/m, and per 100 meters need 32.3202kg yarn.

Taking C32S*C32S 130*70 63” per 10,000 meters as an example, mainstream price is 8yuan/m, and per 100 meters need 25.452kg.

As for compact spinning JC60S*JC60S 90*88 64” per 10,000 meters, mainstream price is 6 yuan/m, and per 100 meters need 12.273kg.

If cotton yarn mills use low-count open-end cotton grey fabric carded 21S before Apr 1 and sell fabric after Apr, the tax can be reduced by 1,648yuan per 10,000 meters, with a fall of 77.37%. In the same way, conventional grey fabric mills use cotton yarns before April 1 and sell fabric after Apr, the tax can be reduced by 1,831yuan/10,000 meters, with a fall of 65.75%. High-count and high-density one use cotton yarn before April 1 and sell fabric after Apr, the tax can be reduced by 1374yuan/10,000 meters, with a fall of 51.08%. The above three varieties purchased cotton yarn before April 1and sell fabric after Apr, the tax can be reduced by 254, 463, and 447yuan/10,000 meters respectively, with a fall of 16.62%.

Therefore, it is favorable to purchase cotton yarn before April 1 and sell fabric after Apr, and advantage of producing low-count grey fabric will be maximized. Considering price spread between domestic cotton yarn and imported cotton yarn, weavers can purchase same varieties of imported cotton yarn, which will further reduce cost.

Downstream customers ask for price increment amid weakening market, so what discount can weavers get on the basis of original price? Taking OEC21S*OEC21S 108*58 63” twill per 10,000 meters as an example, feedstock price is at 56,560yuan/10,000meters, then mills purchase cotton yarn before April 1. Profit of selling grey fabric is 72,000-56,560-2,130=13,310yuan (including the wages of workers, the same below), and profit of purchasing cotton yarn and selling grey fabric after April 1 is 72,000-56,560-1,776=13664yuan, which means that weavers has 13,664-13,310=354yuan bargaining space, so grey fabric has a price reduction of 0.03yuan/m.

Therefore, from VAT cut to see tax burden decrement, reasonable operation of weavers will get the most profits in short term. In long run, weavers will indeed reduce some taxes. However, according to actual situation, how fabric mills communicate with the upstream and downstream will be the art of negotiating.