A worker at a factory of Hung Viet Garment JSC (Photo: VNA) Of which, the US market played an essential role for theindustry. Data from the General Department of Customs of Vietnam showed thattextile and garment exports in the first five months of 2022 to the US marketincreased by 26% over last year to 7.58 billion USD, accounting for 57% of thetotal value of Vietnam’s textile and garment exports.
The newly updated report by Viet Dragon Securities JSC (VDSC) saidthat these figures imply that the prospects of the country’s textile andgarment industry will depend heavily on economic developments in the USmarket.
However, in the second half of 2022, VDSC forecasts that thedemand for textiles and garments will tend to decrease due to high consumptionin 2021, while inflation is cutting people's spending on unnecessaryproducts.
The US market also began to show many warning signs of a coolingdown in apparel demand. In the first quarter of 2022, clothing accounted forjust 3.9% of total US consumer spending, down from 4.3% in 2019 before thepandemic. According to Vinatex, the US market's textile and garment importdemand is likely to decline by 7-10% in the second half of 2022.
On the other hand, the US ban on cotton originating from theXinjiang region that officially took effect on June 21 also caused disruptionsin the supply chain and contributed to higher cotton prices.
VDSC data shows that only 10.5% of US cotton apparel imports camefrom China in April, down from about 15% at the beginning of the year. The banmay affect the source of raw materials of Vietnamese enterprises and createbarriers when exporting to the US market.
But this can also be an advantage for large textile and garmententerprises in Vietnam, who have the ability to diversify sources of rawmaterials, replacing orders to the US of Chinese companies.
Besides, the shutdown of China's economy also contributed to theshift of orders from China to Vietnam recently. In April, China's market sharein textile imports to the US fell to a new record low of 26.3% in volume and16.8% in value.
"In the second half of 2022, companies in the industry willbe under stronger pressure due to high inflation affecting local consumers aswell as export markets," Le Xuan, a senior trader, told Vietnam News.
"Input costs are also expected to climb as supplies depend onthe China market, while logistic expenses inch higher."
Profit margin improves on cooling material costs
The dual effects of post-COVID-19 supply chain disruptions and theRussia-Ukraine conflict has triggered gains the price of yarn and cotton importedinto Vietnam, up an average of 10% year-on-year in the first five months of theyear.
VDSC believes that higher costs weighed on profit margins ofcompanies in the industry as most of them recorded decreases in gross margin inthe first quarter of 2022.
Analysts said that the raw material problem will only be solvedwhen China gradually reopens its economy, as most of the raw materialsfor the Vietnamese textile and garment industry are imported from China.
China is also showing some positive signs in easing borderrestrictions on recession worries in the second half of this year. It isexpected to help gradually reduce input costs for businesses and improve profitmargins for the rest of 2022.
According to VDSC, there is likely to be divergence among theprofits of Vietnamese textile and garment companies in the second half ofthe year. Specifically, the last six months of 2022, domestic manufacturerswill aggressively compete in terms of both input materials and output as ordersare no longer as abundant as in the first half of the year.
“At that time, large-scale businesses with a stable customer baseand products in less tight spending segments like sports-related products andhigh-end products, will have a more competitive advantage," VDSCadded.
Regarding the prospects of enterprises in the industry in thesecond half of 2022, VDSC believes that some enterprises will be able to growbetter than the industry in general, thanks to their expanded productioncapacity and large customer base. Moreover, they also less affected by the costof raw materials than other companies in the industry, mainly due to the FOBmethod.
In a recent report, SSI Research also estimated that revenuegrowth of textile and garment manufacturing companies in Vietnam willdecelerate in the last six months of 2022 and 2023.
Yarn, fabric, logistics and labour costs are expected to remain athigh levels due to rising oil prices and competition in the labour market– mainly among FDI factories.
On the stock market, these stocks are also likely to facedivisions, depending on many factors, Xuan said.
"Enterprises, which manage their expenses, have stable inputcosts, diversify in raw materials sources and increase product values, cangrow in the future," she added./.
VNA
