ReturnThis year silk price has remained in a downward trend and silk reeling industries have still suffered extensive loss, which has drawn particular attention from the people in the industry. When silk price went all the way up years ago, many expected that silk price would exceed RMB 500,000yuan/ton. Unexpectedly, the price lost momentum and went down after it stood at around RMB 400,000 yuan/ton. In recent years, a price inversion happened in the silk industrial chain, silkworm cocoon was sold at higher price and factory silk at lower price and this brought silk reeling enterprises into deep trouble and difficulty.
As a matter of fact, silk industry development in China has long been influenced and deterred by the tremendous silk price volatility and it is the previous round of silk price surging that has caused the bad consequence pushing silk reeling enterprises into dilemma. Climate and environment are indeed the factors causing volatile silk price and silk future price has also contributed to the volatility. “Transfer of Silkworm from East to West” was a very correct strategic decision, but it was affiliated with a politic task of “Constructing New Socialism Countryside”. Silk industry covers a long chain, profit is pursued in each section, priority is given to quick benefit and products are adulterated, which has also caused higher silk price but quality suffered. The silk industry in China has actually suffered serious internal injury and derailed from healthy development due to several rounds of price turbulences.
Some of the foggy ideas on silk prices in the industry have to be rectified in order to reduce the negative influence of silk price on the development of this industry.
One belief is that silk price is decided upon by labor cost and resource cost. Th wages, land prices and the prices of other resources are all going up currently, so factory silk prices have to go up, too. This is a misconception that can be easily accepted. Though value of any commodity is made up of social average cost, commodity price is determined by supply-demand relation. Inflation will indeed push silk price to go up. With moderate rise, the industry can perhaps take and adjust itself to the rise. If the price surges due to human factors, consumption will certainly be restrained and shrunk consumption will bring the price down. In the market economic environment, this “hidden hand” will dominate manufacturing, consumption, demand, price change and “rebalance”. Since silk industry chain is very long, the transmission of this “rebalance” is slow. The silkworm farmers are still unaware and expect a rising silkworm price when market need is reduced dramatically. So we will take a rational attitude toward the silk price change and learn to command and utilize economic law when we truly understand the iron law of market economy of “supply and demand relation determines commodity price”.
The second concept is that silk is the king of all the fibers and the raw material for luxury goods, so high silk price is not a problem. This concept is widespread in the silk industry. Indeed, factory silk can become the raw material for luxury goods and the 5A-level and 6A-level factory silks are obviously expensive than 3A-level and 4A-level silk. With regard to the prices of cocoon, silk and silk fabric, there is a common understanding of better quality for better price. However, we have to know that the silk raw materials used in luxury goods account for very little portion of all the raw materials. In other words, most silk reeling enterprises have to face loss except very few silk reeling enterprises that provide raw materials for luxury goods. 70% of silk reeling enterprises covered by the statistics of Zhejiang Province suffered loss for the direct reason of higher cocoon price but lower silk price from January to June 2014.
The third point is that there has been a lack of sufficient understanding on the harm of high silk price. In recent years, silk price has been going down slowly, but it is still influenced by the hangover of surged price. My personal experience tells that each silk price surge will cause tremendous cut of purchase orders and heavy loss of customers. Notwithstanding all its advantages, silk is not a necessity goods but can be substituted by other garment fabrics. Silk price directly influences the manufacturing capacity, number of purchase orders and consumers. Though the “hidden hand” of the market endeavors to keep “rebalance” time and time again, finally there will be a day when the balance becomes impossible in a region or a country, supply always exceeds demand, manufacturing cost is always higher than market price, and then, the harm of high silk price will evolve into a industrial shift. That is why I use the sensational title “Silk Price Determines Survival of the Industry”.
I think that demand must be created, market share must be expanded, supply and demand balance must be achieved and value and price must come to their rational level in order to maintain Chinese silk industry on a healthy development track. As far as the overall industry is concerned, it is more important that the governments, associations and enterprises shall make joint efforts to stabilize silk price and keep the price from rising too fast except the price of creation silk cultural products and high-end brands. Of course, high cocoon price is the direct reason for high silk price. It is another subject for discussion as how to control cocoon price. Today I hope my argument will be followed by more valuable opinions and arouse reflection and discussion on the industrial issues in more depth by the people of vision and insight.
