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USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed


09 April 2013

USDA GAIN: Viet Nam Cotton and Products Annual 2013USDA GAIN: Viet Nam Cotton and Products Annual 2013

Due to limited cotton production -- less than two percent of total cotton demand -- Vietnam relies heavily on cotton imports to feed its growing textile and spinning industry. Post maintains Vietnam's 2012/2013 cotton production estimate at 4,590 metric tons (mt) or 21 thousand bales. The cotton import reliance is revised to increase by 14 percent in Marketing Year (MY) 2012/2013 with imports reaching 405,000 mt, thanks to strong exports of yarn. In CY 2012, Vietnam imported 416,000 mt of cotton, a year-on-year increase of 27 percent.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

U.S. cotton accounted for 30 percent (despite recent contract defaults) of total imports that year. Due to a strong increase of U.S. cotton exports to Vietnam in the first 6 months of this MY 2012/2013, post believes U.S. cotton exports this MY will likely lead to a bigger market share. Current trade data on value-added cotton products (mainly yarns) is also provided.

Although it is still early to provide a forecast on Vietnam’s cotton production and trade for the next MY (2013/2014), post’s initial production forecast has been set at the same level of 2012/2013, due to no changes to Vietnam’s biotechnology policy. MY2013/2014 cotton imports are projected to increase slightly.

Situation and Outlook

Textile Industry

Vietnam is now ranked among the world’s top seven textile, garment, and apparel-exporting countries. Despite the global economic downturn, Vietnam’s 2012 textile, garment, and apparel exports still met the government’s target, reaching a value of $16.9 billion -- an increase of 7 percent over 2011 (Source: Vietnam Customs Office). This growth is mainly due to the sector maintaining its traditional export markets (USA, EU, Japan), while also expanding to new export markets (China, Turkey, Korea, the Middle East, Africa etc.). Vietnam has set ambitious targets for the textile industry, with exports targeted by the Vietnam Ministry of Industry and Trade (see table 2) to reach $25 billion by the 2020. The Trans-Pacific Partnership Agreement (TPP), if finalized, would help Vietnam achieve this target.

The United States remains the largest market for Vietnam’s textile industry, and accounted for nearly 45 percent of total sector exports in 2012. This represented a year-to-year increase of nearly 7 percent.

Vietnam is one of very few countries in Asia that have expanded their yarn spinning sector in recent years. From only 2 million spindles in 2000, Vietnam’s spindle capacity reached over 5.1 million spindles (equivalent) in 2012, creating the potential for voracious demand for imported cotton.

Due to strong demand for yarns from international markets, especially China and Turkey, Vietnam exports of yarn in 2012 continued growing, and reached 415,000 metric tons, a year-on-year increase of 8 percent. Vietnam exports over 60 percent of the yarn (including cotton yarn) that it produces. Main export markets for Vietnamese cotton yarn are China, Turkey, Korea, Indonesia, and Thailand.

Cotton Market

Post maintains the forecast for MY 2012/13 cotton lint production at 21 thousand bales, an 11.4 percent decline compared to MY 2011/12, as low cotton prices and strong competition from other agricultural crops (i.e. corn and soybeans) will reduce planted area slightly. Due to current low cotton trend and the delay in allowing BT cotton seed cultivation, the production in MY 2013/14 is forecast to be the same as the current crop. Vietnam’s plan of having a domestic cotton growing area of 76,000 hectares by 2020 seems to be overly ambitious (Vietnam planted around 10,000 ha in 2012). In all likelihood, Vietnam will continue to rely heavily on cotton imports to fulfill its cotton needs.

Post revises the MY 2012/13 cotton imports to 405,000 mt or 1,858 thousand bales, an increase of 14 percent over MY 2011/12. This growth is attributed to the expanding cotton spinning sector and continued strong exports of Vietnamese cotton yarns to overseas markets, especially China and Turkey. In 2012, China became the biggest buyer of Vietnamese yarns (mainly low-count cotton yarns) with its imports reaching 198,000 mt -- an increase of nearly 70 percent over 2011.

In 2012, Vietnam imported 416,000 mt of cotton, a year-on-year increase of 27 percent, thanks to strong demand for cotton yarns in international markets. For the sixth consecutive year, the United States remains the largest supplier of cotton to Vietnam. Vietnam sourced 126,600 tons (about 30 percent) of its total cotton imports in 2012 from the United States, making it the 4th largest market for U.S. cotton at a value of $248 million. In fact, in terms of value imported U.S. cotton, Vietnam has just jumped from the 7th largest market in 2011 to the 4th largest market in 2012, surpassing Indonesia, Korea, and Thailand.

Production

Vietnam’s Cotton Production in 2012/2013 and 2013/2014

Post maintains the forecast for MY 2012/13 cotton lint production at about 21 thousand bales, an 11.4 percent decline compared to the previous year as low cotton prices and strong competition from other agricultural crops (i.e. corn and soybeans) resulted in a reduction of planted area.

It is still quite early to provide a forecast for the next Marketing Year (August 2013- July 2014). However, with current low cotton price trends (compared to other agricultural crops, i.e. corn and soybeans) and the delay in allowing BT cotton seed cultivation, Vietnam cotton production forecast for MY 2013/14 is initially set at the same level of the current crop.

Vietnam’s plan of having a domestic cotton growing area of 76,000 ha by 2020 seems to be overly ambitious, as planted area only reached 10,000 ha in 2012.

In all likelihood, Vietnam will continue to rely heavily on cotton imports to fulfill its cotton needs.

Cotton production in Vietnam is highly susceptible to weather conditions and can fluctuate widely from one year to the next. More than 90 percent of the cotton production area in Vietnam is rain-fed, with planting initiated in the rainy season (May/June – August) and harvesting taking place from October - December. In areas where irrigation is possible, cotton may be planted in the dry season (November/December), thereby allowing for harvesting from March through May.

Trade

As a result of strong demand for cotton yarns from international markets, especially China, Vietnam cotton imports in calendar year 2012 saw a significant increase -- 27 percent over 2011. Its imports reached a record of 416,000 mt or 1,908 thousand bales with a value of $870 million. U.S. cotton exports to Vietnam during 2010-2011 remained relatively stable, between 132,900 and 133,200 mt. However, exports in 2012 dropped by 5 percent reaching 126,600 mt.

Vietnam’s Primary Cotton Suppliers

According to Table 6 and the pie chart below, in 2012, Vietnam imported about 416,000 tons of cotton, a year-on-year increase of 27 percent. The United States remains the number one cotton supplier to Vietnam, with more than a 30 percent share of Vietnam’s total cotton imports (note: this marks the sixth consecutive year that the U.S. is the leading supplier of cotton to Vietnam). Brazil ranked second and India was the third largest supplier. Other major suppliers include Pakistan, African countries, and Australia.

US Cotton Exports to Vietnam

In 2012, U.S. cotton exports to Vietnam totaled 126,600 tons for a value of $248 million, a year-on-year decrease of 5 percent in quantity and 31.5 percent in value due to slump in international cotton prices. While table 7 shows the growth of U.S. cotton exports to Vietnam during the last 6 years, table 8 and table 9 will provide the details of U.S. cotton grades exported to Vietnam in volume (thousand metric tons) and in value (thousand USD).

According to table 8, U.S. cotton exports to Vietnam during August 2012-Janurary 2013 shows a sharp increase of 54 percent in comparison with the same period of 2011/12. Post believes U.S. cotton exports to Vietnam in MY 2012/13 will likely lead to a bigger market share in Vietnam.

In MY 2011/12, Vietnam imported 354,000 tons (or 1,623 thousand bales) of cotton, valued at $871 million, a slight increase of 3 percent in quantity but a sharp decrease of 18 percent in value over the previous year due to plummeting world cotton prices.

Cotton imports in the first 6 months of MY 2012/13 (August-March) reached a record of 316,000 mt, a year-on-year increase of 49 percent in quantity. Due to high imports and strong demand of Vietnamese cotton yarns in international markets, especially China, cotton imports for MY 2012/13 are forecast to reach 405,000 tons (or 1,858 thousand bales), a sharp increase of 14 percent.

It is still early to provide a forecast for Vietnam’s cotton imports for the next marketing year (2013/2014). However, given the expanding cotton spinning sector, strong exports of yarn, and low price trends (relatively lower prices in comparison with prices in the last 18 months), initially, Vietnam’s cotton imports in 2013/14 are forecast to continue increasing slightly, by 3 percent, to reach 417,000 tons (or 1,914 thousand bales).

Consumption

Vietnam’s domestic cotton consumption continues to increase in order to meet strong demand from its expanding textile industry. Demand for yarns is strong, both for export and domestic markets. Vietnam is currently home to 100 spinning mills with 5.1 million spindles (equivalent) for a total capacity of 680,000 tons of cotton-man-made fiber yarns. Vietnam’s cotton consumption has been increasing at an average rate of 7-8 percent, per year, for the last five years. Post revises estimated domestic cotton consumption for 2012/13 to 392,400 tons, equivalent to 1,800 thousand bales (note: the previous Post’s estimate was 1,680 thousand bales). Please see the PS&D Table (table 3) for more details. This revision reflects the stronger exports of cotton yarn to overseas markets, especially China and Turkey.

Stocks

In 2012, Vietnamese businesses suffered from high interest rates on bank loans. The average interest rate was about 16 percent, which is among the highest in Asia. As a result, cotton users and traders tried to minimize cost by reducing carry-over stocks of cotton. Ending stocks in 2011/12 were 309 thousand bales, with a stock-to-use ratio of 18 percent. As cotton prices and bank interest rates have gradually softened during MY 2012/13, cotton users and traders have taken on a larger inventory (388 thousand bales), creating a slight increase in the stocks-to-use ratio (22 percent).

Prices

The average import price for 2012 was $2.09/kg, a decrease of 35 percent in comparison to the average import price in 2011.

Domestic Prices:

Presently, the Vietnam Cotton Company (VCC) is buying seed cotton at an average price of VND 12,000/kg, equivalent to $0.574/kg (or 26.0 U.S. cents/lb), a decrease of 29.4 percent in comparison with the previous crop (note: in the previous crop, VCC bought seed cotton at VND 17,000-18,000/kg). VCC is currently selling ginned cotton to mills at $1.99-2.04/kg (90.3-92.5 US cents/lb). However, it is quite difficult for mills to accept these price levels due to the current slump in international cotton prices.

April 2013

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