Overall spun yarns exports of India drop in July
In July 2016, 83 countries imported spun yarn from India, with Bangladesh at the top accounting for 18.2 % of the total value with imports rising 23.9 % in terms of volume YoY year on year, and climbing 21.5 % in value YoY. China became the second largest importer of spun yarns in July and accounted for around 18.17 % of all spun yarn exported from India.
Export to China plunged 74.8 % cent in volumes and 74.5 % lower in value.
China, a top importer of India yarns, particularly cotton, has significantly reduced its sourcing in recent past. However, India continues to be the major supplier of yarns for China. China has simultaneously reduced yarn imports from the World over the past one year. In July, India’s cotton yarn exports to China plunged 75 per cent year on year both in terms of shipment and value. During the month, shipment was just 17 million kgs valued at USD 285 million as against 66 million kgs worth USD 1118 million. This significant drop is likely to impede Indian exports in coming months since China has put its eye on Vietnam goods.
India, which once led as a cotton yarn supplying nation to China is now been relinquished to second position. This was done by not so powerful as an economy or a textile giant, Vietnam. And this not the story of aberration, it has been the top supplier of cotton yarn to China since March 2016, when it overtook India. And that too, at a much higher unit price realization than India and also Pakistan, the lowest in the rung.
Why is China preferring high cost cotton yarn from Vietnam? The numbers available for July 2016, Pakistan was the cheapest supplier of cotton yarn for China, followed by India and then Vietnam. In July, average import price for cotton yarn from the World into China was US$2.55 per kg. The same from Pakistan was USD 2.18 a kg, from India USD 2.42 a kg and USD 2.59 from Vietnam. Similarly, in July 2015, the numbers were at USD 2.75 a kg (Total), USD 2.28 a kg (Pakistan), USD 2.72 a kg (India) and USD 2.83 a kg (Vietnam). Thus, it is apparent that prices have dropped over the year, Vietnam prices continue to be remain the highest and Pakistan the lowest.
So coming back to the question, Why China has increased high priced import from Vietnam. There are four components in the pricing of Vietnam’s yarn. First, the low but rising cost of production, high raw material due to elevated cotton prices, product margin and the returns on investment of Chinese investors in Vietnam. Although, no value can be specified to the fourth element, it is evident that China had invested large money into Vietnam to take advantage of its low cost labor. If they pay more money to Vietnam it will come back as ROI into Chinese economy.
During the first seven months of 2016, China’s import of cotton yarn from Vietnam increased 7 % to USD 866 million with shipment aggregating 334 million kgs. In similar comparison, import from India declined 42 % to USD 635 million (263 million kgs) and that from Pakistan was down 41 % at USD 482 million (220 million kgs). In February 2016, import from India was worth USD 76 million and that from Vietnam was USD 64 million. From March onwards import from India remained below USD100 million while Vietnam averaged USD 140 million.
In the last two years, labor cost has been rising rapidly in Vietnam. The low-cost country is now clearly confronted with an excessive rise in its labour costs, after minimum wages were repeatedly raised in the past years. A fresh bout of increase of 7.3 % – far above inflation rate, is being proposed for next year, which may hamper exports for Vietnam and make yarn costlier for Chinese buyers. Will Indian suppliers respond proactively to regain its market share in China?