The World Waits To See How Much Cotton Will Get Inside China’s Walls
March 23, 2009 How important is China to the world’s cotton trade balance? Consider this stat snapshot. For marketing year 2006/07, China is forecast to be the world’s top cotton producing country; it is also is the world’s top cotton consumer, with enough of a gap in-between those two figures to make China also rank as the world’s biggest cotton importer to fill its world-highest demand.
If that isn’t convincing enough, consider the fact that in each of those categories, the race for first isn’t even close. China is expected to produce 30.9 million 480-lb. bales of cotton for 2006/07 according to the U.S. Department of Agriculture’s Foreign Agriculture Service (USDA-FAS); its closest competitor, the U.S., is projected to produce about 21.6 million. China’s imports are forecast by USDA-FAS to be around 13.5 million bales. Turkey, the world’s next biggest cotton importing country, is expected to import 3.1 million. As a consumer, the difference is even more stated: China will absorb about 50 million bales of cotton in 2006/07. India, the world’s second-largest consumer, will use 18.5 million. In fact, the amount of cotton consumed in China alone is greater than the total that will be used by the next five biggest cotton consumers combined.
A Demanding Country
The international cotton community has long relied on China as an importer. Last year, the record-high domestic cotton output in the country plus a bumper crop in neighboring India (an increasingly important trade partner) helped to lower China’s demand for imports, and the rest of the world felt the reverberations, with high carryover stocks in numerous producing markets and a plummeting global price. The China Cotton Association (CCA) estimated that China’s 2006 cotton season (September 2006 to March 2007) saw imports fall 49% from the 2005 cotton season.
Will demand languish again this year? It appears unlikely. Even though a government subsidy for quality cotton seed is expected to push the country’s cotton area up slightly to 5.43 million hectares (Ha) according to CCA, textile production is also on the rise.
The hungry milling industry is forecast to need 11 million tons in 2007 by CCA’s count. According to numbers from the China State Statistics Bureau, the country’s yarn output for the first three months of 2007 was 4.17 million tons, an increase of 21.6% over the first quarter of 2006. And this is on top of a 2006 that witnessed total yearly yarn output increase 19.6% over 2005. Total yarn and fabric exports for the first three months of 2007 grew 9.8% to 11.1 billion tons; clothes and apparel attachment exports were valued at U.S. $20.2 billion, an increase of 17.6%, according to the China General Administration of Customs.
Global Changes
China’s booming textile and clothing sales are continuing despite several measures that were expected to stem their growth. In 2006, the U.S. and E.U. had quotas in place to limit China’s effect on their markets. However, according to the World Trade Organization (WTO), these efforts did not cause any change in the flow of trade; China’s shipments of textiles and clothing increased by 25% in U.S. dollar terms in 2006 (even higher than the 21% rate of increase in 2005). While that growth was limited to 10%-15% in the E.U. and U.S., other trading partners took on greater shares of China’s products.
| RUNNING THE COTTON TABLE | ||||||
| China’s influence over cotton reaches into all segments of the industry, and leads most other countries by wide margins. April 2006/07 forecasts in 1,000 480 lb. bales. | ||||||
| Country | Production | World Rank | Consumption | World Rank | Imports | World Rank |
| China | 30,900 | 1 | 50,000 | 1 | 13,500 | 1 |
| U.S. | 21,567 | 2 | 4,950 | 5 | 15 | T-64 |
| India | 21,500 | 3 | 18,500 | 2 | 350 | 17 |
| Pakistan | 9,850 | 4 | 12,100 | 3 | 2,100 | 5 |
| Turkey | 4,000 | 7 | 7,000 | 4 | 3,100 | 2 |
| Source: U.S. Department of Agriculture – Foreign Agriculture Service (USDA-FAS) | ||||||
In fact, as of January, it appears that the E.U. quotas will be filled early this year – extremely early in the case of some product categories. While shipments to the E.U. were slow through much of 2006, trade heated up significantly at the end of the year, with several categories reaching 80% to 90% of the quota limit.
That heat carried over into 2007. By mid-January, quotas for several categories were filling rapidly, such as women’s and girls’ dresses (category 26), which were already 11% full. At the rate such products were selling early in the year, some categories could hit their quotas by the middle of the year.
Part of the surge in trade came about because of the accession of Bulgaria and Romania to the E.U. At the end of 2006, exports to these two countries took off at a frenzied pace to take advantage of the coming E.U. accession, as traders shipped products into the countries with plans to re-export them to other E.U. Member States. By some accounts, textile and clothing exports to Romania and Bulgaria were up 648% and 836%, respectively; clothing exports to both countries were up over 1,000%.
Tricky Business
Despite all the growth figures, China’s cotton textile industry faces a share of questions. Like many industries, margins are thin (under 3%) on most products, and competition is fierce.
More difficult, however, is the fact that it seems impossible for China to stay on the road it has been on for the past several years for very much longer. By projections that some experts have called conservative (a 17.35% growth rate, as prescribed by China’s 10th 5-Year Plan; recall that the growth rate of the past few years has been in the 20% range), China could be producing 33.2 million tons of yarn by 2010. Cotton consumption is pegged at around 22.5 million tons. If production can grow to produce 7 million tons by then – a fairly tall order in an industry so tied to the whims of weather, pests, disease, and other unpredictable factors – China would still be faced with import demand for 70% of its cotton needs, or about 15.5 million tons.
But here’s the problem: the world (minus China) only produces about 18 to 20 million tons of cotton. Unless spinning essentially shuts down in every other world market, China would not be able to import the amount of cotton its textile industry will require.
For now, the textile industry keeps growing, and world producers want to feed it. The question remains as to how the Chinese industry will shift to get its appetite under control.
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