China has emerged as the largest consumer of US cotton, after stockpiling its own and other imported cottons under the `cotton reservation policy` for the last 15 years. It was, indeed this driving factor, combined with the poor growing conditions in Texas, that fuelled the six-year high in cotton prices, over the period of May-June 2018.
In an unprecedented move, China moved in strongly to raise its import volumes and bought enough American cotton – amounting to 360,000 bales of cotton for the year 2019-20 – to make up to 400 million T-shirts. This was global first: it is very unusual to make such huge forward sales, and it caused the Cotlook A price to shoot up to $1+.
The Asia scenario
China
With the above unusual move, despite the potential trade war between the US and China, China will return as the largest cotton importer, taking an average 12 million bales, amounting to around 2.5 million ton in fibre weight, by the year 2019-20. According to China’s Cotton Industry Association, the government is likely to issue more import quotas to boost the purchase of cotton from leading sources such as the US, India, Uzbekistan and Africa. Such import quotas are being directed to addressing the country’s increasing cotton usage, with demand estimated at 41.5 million bales by the end of 2018-19.
India
India’s cotton sector has been keenly watching the developments in China, and playing its own game, wherein India’s cotton exporters signed contracts to ship out 0.5 million bales of cotton, with an approximate weight of 85,000 tons. This was withdrawn from the running cotton season, and was directed to feed the imports by China for its next cotton season of 2019/20. The above described robust demand from China, and higher C&F prices of 86 to 92 cents – which were much above the prevailing domestic average price of INR 40,000 per candy, prompted the Indian cotton exporters to sign advance contracts. The Cotton Association of India reports that the country’s cotton exports have jumped by 30% over recent years and will touch a four-year high of 7.5 million bales – approximately 1.2 million tons – from the current running crop of 2017-18.
These China-US-India linkages led to a rice riot in the domestic cotton market in India and took the average price for S6 cottons to INR 47,000 per candy, up from the more usual 40,000. This severely impacted the yarn spinning industry due to the higher demand for working capital and, in fact, led to lower capacity utilisation in both the yarn and the fabric sectors, especially over the month of June. This also negatively impacted the exports of Indian yarns, which bore the brunt of backwash from the much favoured and aggressive cotton exports. As a result, India’s yarn exports to China lost out to Vietnam, which also does not have to pay 3.5-5% duty on such yarns. While exports of yarns from Vietnam have been constantly rising to take a global share of 20%, India’s yarn exports are in decline.
Uzbekistan
Uzbekistan remains one of the world’s largest cotton producers and exporters. Recently, large Chinese investments have been taking place in the yarn spinning and fabric sectors, to leverage the more than adequate supply of and good quality, cheap Uzbek cottons. With China’s BRI freight-corridor possibilities increasing, especially to Europe via the CIS countries, Uzbekistan is now in the process of repositioning itself as a major textile production hub.
With green NGO groups now taking a softer look at the past forced-labour issues in the cotton sector, the new government has also given assurances that it will take corrective actions to mechanise and modernise cotton farming. It is likely that major international brands will considerably up their cotton sourcing from Uzbekistan. With reforms in cotton farming, and investments in value-adding textile mills from China, Uzbekistan look likely to evolve as a formidable competitor to Vietnam, India and Turkey.
East Africa
Kenya
Kenya’s Agriculture Authority reports that cotton growing in Kenya could support up to 200,000 farmer families, which would have a cascading impact of creating nearly 500,000 cotton-related jobs, and 100,000 new jobs in textile manufacturing chain of yarn and fabrics, in addition to the existing large numbers in export garment production hubs.
This will be a major initiative and area of focus for the government, considering that currently around 30,000 farmers grow cotton on an area of 21,000 hectares. With the future demand potential for 140,000 bales of cotton, the country has the pro-rata potential to expand the cotton growing area to 400,000 hectares by 2025. This will also help revive and restore the cotton manufacturing chain, which stands seriously disrupted in Kenya at present, as is also the case for Nigeria in West Africa. Like Kenya, Nigeria has also committed Naira 50bn (US$139m) to the revival of its cotton industry.
Tanzania
Tanzania, the East African neighbour to Kenya, is also seriously eyeing the gains and opportunities that its cotton sector might bring to its exports. Like Ethiopia, Tanzania has understood the importance of cotton to its industrial economy and the value it can bring its export trade. It has been successful in its cotton revival initiatives, in contrast to the decline witnessed in Kenya and Ethiopia.
The target is to increase the current level of cotton exports of $30m to a level of $150m by 2020. In line with this mission, government programmes and a number of strategies have been put in place, effective since 2017, to ensure that cotton output surpasses the 600,000-ton mark by 2020. The Tanzanian blueprint focuses on the use by farmers of improved seeds, such as UKM08, instead of the substandard seeds being used presently.
The Road map for cotton developments Asia and East Africa is leading to a more dynamic scenario for global cottons, where peer and leading cotton producing countries including India, China, Turkey and others, are likely to take a lot of heat from new, emerging players from East Africa and Central Asia.
Source: www.wtin.com