Thursday, April 23, 2020

China Cotton Shrinks in Pandemic

The shrinkage of China's cotton-textile sector is gaining momentum during the global pandemic.

China's agricultural ministry expects cotton area to fall 0.5 percent in 2020, while a planting intentions survey by China's cotton reserves company predicts a steeper 5.1 percent decline. The Ministry of Agriculture and Rural Affairs newly-released 10-year projections show that area planted in cotton will decline by a cumulative 3 percent over the next 10 years (less than the 5 percent plunge in area predicted by the cotton reserves survey for this year!)

The cotton reserves corporation report expects a 4.7 percent decline in Chinas' cotton output to 5.58 million metric tons in 2020. The agriculture ministry projects a 2.2 percent increase in output, but this will only be temporary. The ministry projects a peak in cotton output at 6 million tons during 2021-22 and a decline to 5.82 million metric tons in 2029.

Both reports highlighted plunging area in the central and eastern regions with steadier production in the Xinjiang Autonomous Region in China's far northwest. The China cotton reserves corporation expects a 10.9 percent area decline in the Yellow River region, a 21.9 percent decline in the Yangtze River valley, and a 1.6 percent decline in Xinjiang's area planted. Xinjiang is expected to account for 77 percent of cotton area in China. The agriculture ministry expects a 2 percent increase in Xinjiang and slower declines of 6.2 percent in the Yellow River region and 8.7 percent in the Yangtze region.

The agriculture ministry said state reserves disgorged a cumulative 8.45 million tons of cotton over the last 3 years, including 1.16 million tons auctioned from May 5 to Sept 30 last year. The ministry said the de-stocking of excess reserves is now complete. Authorities aimed to add 500,000 tons to reserves between December and March and purchased most of their target in the first month.

Current market conditions are dismal, with export orders scarce and domestic textile business weak. The ag ministry expects a 2.5 percent decrease in cotton consumption to 7.93 million tons this year and further decline to 7.25 million tons in 2029. Imports were up 17.6 percent this year, but are expected to decline 8.1 percent this year and fall by a further 14.8 percent by 2029. A surge in imports from Brazil made that country China's top supplier of cotton imports last year.

Cotton prices reported by the National Bureau of Statistics fell below the price of imported cotton last year. Prices fell again during the peak of the covid-19 pandemic and appeared to stabilize in late March. The average cotton price in the first 10 days of April was down 17.6 percent from January 1. Polyester filament prices were down 26.7 percent over the same period.
Data from China National Bureau of Statistics raw materials purchase price reports.

China Cotton Net also reported that the Urumqi (Xinjiang) railway bureau has slashed the freight rate for cotton by 70 percent for 70-ton cars (65% for 65-ton railway cars). The bureau said it will take other measures to reduce costs of shipping cotton from Xinjiang to eastern regions. The measures are meant to revive production by cotton enterprises suffering losses during the covid-19 pandemic. According to the report, transportation by truck has been cheaper than rail since highway tolls were waived after the January Spring Festival holiday. Truck freight from Korla in Xinjiang to Hebei and Shandong Provinces now costs 400 yuan per metric ton. According to the report, orders have dropped sharply for exporting companies and show no signs of picking up soon.

China Cotton Net also predicted that Vietnam could surpass China to become the world's top apparel exporter this year. In the first two months of 2020, Vietnam had a 18.8% share and China had a 21.3% share of the U.S. textile import market. The shift of apparel exports from China to other countries began last year, the report said, attributed to rising labor costs over most recent decade. Vietnam has been exporting more apparel to China, another manifestation of the shift. Vietnam also has rising labor costs, the report said, and Vietnam's advantage is in chemical fiber while Bangladesh and Cambodia have labor cost advantages. Vietnam's exports fell during the first quarter of 2020, but the article expects a resurgence when the pandemic passes.

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