Indonesian Market Report: A Light at the End of the Tunnel?
March 31, 2011 According to Spinwell Corp., the most recent Indonesia report, there is simply no better way to describe the first quarter of 2011 than “a perfect storm”: historically high cotton future prices, turmoil in the Ivory Coast and several Middle East nations, the tsunami that hit Japan, and the weather change phenomenon in Australia. All have contributed to increasing concerns about a global crisis.
The year began with a scarce cotton supply that led to skyrocketing prices, but it wasn’t until March that many of the real problems began to surface–especially in Indonesia, where the textile market for cotton and cotton products has trickled to a stop. To make the situation worse, Indonesian mills are currently using cotton purchased at an average price of cotton of $2.00 to $2.10 per pound.
Meanwhile, due to the slow (or complete lack of) demand of yarns, these mills are forced to lower their price just to keep the cash flow moving. As of press time, Indonesian yarns for 30s Carded are being offered at an average of $6.40kg down from $6.80/kg the week before. Competitive offers from China, India and Pakistan are already coming in at less than $6.00/kg, including all import costs.
Last month’s sentiment was, “Whoever has cotton is king.” But that is no longer the case, as many spinning mills have started to release their raw cotton stocks into the market and switch to spinning polyester, blends and rayon, which are still moving despite the similarly high prices of those fibers.
Spinning mills’ yarn stocks are very high and unmoving. As a result, physical demand for imported cotton is unusually low.
Looking forward, the best hope for the local cotton manufacturing industry lies in the usually large order for the Muslim festival (the biggest event in local textile industry), which falls in August. In a normal year, orders are placed in the market during the first few months of the year, and while that is not the case this year, many are confident that the orders should be coming during the month of April.
Of course, in a world in which the strongest survive, not all Indonesian mills are in dire straits. Although they all face difficult times, some are confident that things will start to improve, and some have already begun to put expansion plans on the drawing board.
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