Vietnam Cotton and its Textile World
TextileFuture is presenting to its readers a most complete and latest report on Vietnam’s cotton situation and textile products published by the U.S. Department of Agriculture. The author is Kiet Vo and the author gives many interesting figures he has complied from official sources. The USA plays an important part in Vietnam’s cotton imports. Today’s feature is also an addition to the original introductions on Vietnam in TextileFuture Newsletters of May 3 May 31, and June 14, 2016
Post estimates that cotton planted area in Vietnam likely drop to less than 1000 hectares. Post revised its estimate of cotton imports to Vietnam in MY2015/2016 down 121000 tons to 998800 tons (or 4581 million bales), from the previous forecast of 1.17 million tons, which was calculated based on the average 5-year growth. This situation made cotton exports to Vietnam in MỴ 2015/2016 up 7 % in volume and 1 % in value over MY 2014/2015. In MY 2015/2016, U.S. cotton continues to capture the market with a dominant share of 42 %. In MY2016/2017, Vietnam’s cotton consumption is projected to continue rising at a strong pace.
Vietnam is now ranked among the world’s top five textile and apparel-exporting countries. Despite difficulties in the global economy, the growth pace of Vietnam exports of textile and apparel products continued strong in calendar year 2015 with an export value of USD 27.2 billion – an increase of 9.43 % over 2014, slightly lower than the USD 28-billion target. The United States remains the largest market for the Vietnam textile and garment industry. In 2015, Vietnam garment exports to the U.S. increased 11.5 % to USD 10.9 billion, accounting for 40.3 % of its total export value. Other important international markets for Vietnam apparel products include the EU (12.5 %), Japan (10.2%) and South Korea (7.8 %).
Currently, Vietnam’s textile and apparel industry continues to experience robust growth due to sizable number of investments from both foreign and local investors. The investment is visible across the supply chain including spinning, weaving and knitting, dyeing and finishing, and garment making.
Newly established and expanded investment projects have been made to capture opportunities offered by free trade agreements that Vietnam has signed with its trade partners, such as the Trans-Pacific Partnership Agreement (TPP), the Free Trade Agreement with the EU, the Asian Economic Community (AEC) and FTA Vietnam – Korea. Vietnam’s textile and apparel exports in 2016 were projected to rise by 12 % to USD 29.5 billion to USD 30 billion. However, statistical data shows that this ambitious target may not be reachable – exports in the first ten months reached USD23.3 billion or 78.9 % of the target. This reality has caused the industry to revise its 2016 export target down to USD 28 billion, same as the 2015 target.
Additionally, a lower growth rate in the textile and apparel sector is also responsible for the revised export target. In 2017, textile and apparel export growth is projected slightly up from 5 % to 7 % compared to the industry’s routine two-digit growth.
In 2015, foreign direct investment into Vietnam reported by the government reached USD 22.75 billion, an increase of 12.5 % year on year, of which an estimated amount of USD 2 billion was channelled into the textile and garment industry. Foreign capital inflows and investments were directed at: Hyosung Dong Nai (Turkish investment capital of USD 660 million), Polytex Far Eastern Vietnam (Taiwanese investment capital of USD 274 million), Ilshin Vietnam (Korean investment capital $177 million) and Worldon Vietnam (Hong Kong investment capital of USD 160 million). Replacing outdated spindles is increasing the number of new and existing spinning mills being registered in 2016.
The increasing number of spindles would also create a strong demand for cotton. It is estimated that Vietnam annual spinning capacity reached 990000 tons at the end of 2015, up about 10 % over 2014.
In 2016, FDI flows into Vietnam are reported at USD 18 billion, down 10 % over the same period last year. Similarly, investment flow into Vietnam’s textile and garment industry is also reported less than 2015. However, this decline is not a threat to the industry’s development because large investment projects started in 2015 are still under construction.
Vietnam exports about 65 % of the yarns (including cotton yarn) that it produces to international markets, especially to China, Turkey and South Korea. In CY 2015 yarn export volume was up 12 % to 961777 tons, of which 498100 tons were shipped to China, up 26 % over 2014; 92400 tons to Turkey, down 15 %; and 75700 tons to Korea, up 12 %. Yarn exports in the first 10 months of 2016 reached 960000 tons, up 20 % over the same period last year. Post estimates that total yarn exports in CY 2016 will climb to 1.1 million tons, an increase of about 14 % year-on-year.
Vietnam continues to rely heavily on imported cotton to feed its growing spinning industry. The country’s top five cotton suppliers include the U.S., India, Brazil, Australia and Cote d’Ivoire, which have make up 70 % to 80 % of the total cotton supply. However, Vietnam cotton buyers are looking for other suppliers including Argentina and African countries. Currently, the evidence suggests that import quantity is still negligible from other suppliers. Vietnam is likely to remain the fastest growing cotton consuming country because of several factors – including: reaping the benefits from different sources, increasing cotton yarn imports from international markets, especially from China, Turkey and South Korea, and taking advantage of the opportunities offered by a series of free trade agreements with trading partners. In other words, as Vietnam’s textile sector grows – the country will continue to import more cotton in the short to medium term.
Vietnam’s Cotton Production in MY 2015/2016
Vietnam’s cotton planted area continues to shrink in MY 2016/2017. Post estimates that cotton planted areas at 1,000 hectares. Additionally, reduced planting of cotton as a cash crop is limiting its significant strategic role in the economy. As a result, it is becoming difficult to find hard and reliable data on cotton in ministerial and provincial reports. Declining cotton planted acreage means, Vietnam will soon become a net importer of cotton. There are several reasons that help explain the dramatic decline of cotton planted area in Vietnam:
1) International cotton price has dropped in the last few years while local cotton production cost remained uncompetitive.
2) Cotton is facing increasingly tougher competition from other cash crops including coffee, cashew, corn, and cassava. These cash crops are more profitable to farmers.
3) Lesser incentives offered by state entities and no commitments made by cotton ginning mills to guarantee the farmers’ profit
4) Increasing investments in cattle livestock in the Central Highland region is taking over lots of cultivated land, including those for cotton plantation; and
5) China is importing less cotton and resulting in more exportable supply from international producers (USA, Australian, India, Brazil and Pakistan)
Vietnam’s cotton production is negligible, less than 1 % of the total market demand. The country depends on imported cotton.
Vietnam Imports of Cotton by Calendar Year and Vietnam’s Primary Cotton Suppliers
Strong demand for cotton yarns from international markets, especially from China, Turkey and South Korea, is causing Vietnam to import more cotton to feed its growing spinning sector. Total cotton imports in CY 2015 were reported at 1.02 million tons or 4.67 million bales, up 34 % over the previous CY, which is slightly less than Post’s previous estimates of 1.1 million tons (or 5.04 million bales) due to a sudden decline in import volume in the last three months of the calendar year 2015.
Vietnam’s cotton imports in the first ten months of 2016 reached 875,000 tons, slightly down 1.1% over the same period last year. Post forecasts Vietnam’s total imports of cotton in CY 2016 will be flat at 1.05 million tons.
The United States has topped the list of cotton suppliers to Vietnam for nearly a decade. U.S. cotton exports to Vietnam in calendar 2015 totalled 432000 tons for a value of USD 623.6, up 97 % in volume and 59 % in value. The U.S. market share went up to 42.6 % from 28.9 % in the CY 2014, reflecting its commitment in dealing with tougher competition from other major cotton suppliers, such as India, Australia and Brazil. Statistical data in the first ten months of CY 2016 showed that the U.S., Brazil, Australia, Argentina and Indonesia experienced positive growth in exporting cotton to Vietnam, while export volumes for all other countries fell. Refer to Table 6 below for further details:
Vietnam imports of cotton by Marketing Year (August 2015-July 2016)
Vietnam imported a record of 998800 tons (or 4.58 million bales) of cotton, valued at USD 1.56 billion in MY 2015/2016, an increase of 7 % in quantity and 1 % in value over the previous marketing year. In light of newly operated spinning projects in MY 2016/2017, Post forecasts Vietnam’s cotton imports will increase to 1.1 million tons or 5.05 million bales in the MY2016/2017, up 10 % over MY 2015/2016.
U.S. Cotton exports to Vietnam
U.S. exports of cotton to Vietnam skyrocketed to a record-breaking volume of 432,000 tons in calendar year 2015, up 97 % over the previous calendar year. This significant gain helped the U.S. increase its market share from 28.9 % in CY 2014 to 42.6 % in CY 2015 and partially offset the decline in exports to the other markets, such as China and Turkey where U.S. cotton exports in calendar year 2015 dropped 6 % to 494000 tons and 29 % to 303000 tons, respectively. The U.S. cotton success story in Vietnam in the calendar year 2015 is attributed to various factors including:
• cotton imports increased strongly to match a growing demand for cotton yarns from both domestic and export markets, specifically from China, Turkey and South Korea
• major spinners in Vietnam representing Chinese, Taiwanese and Korean investments, continue to favour U.S. cotton for its stable and premium quality, availability and competitive price
• reduced cotton export from India due to falling global prices
• Pakistan’s cotton supply dropped significantly due to lower production caused by damaging outbreaks of whitefly
Although Vietnam’s import of cotton is forecast to be flat in CY 2016, U.S. exports of cotton to Vietnam is likely to increase – considering that exports in the first 10 months increased to 441000 tons, up 5 % over the same period last year.
U.S. cotton exports to Vietnam in MY 2015/2016 reached 421013 tons (or 1.93 million bales) for a value of USD 598 million, a year-on-year increase of 4 percent in quantity and 1 percent in value. The growth rates were much lower than the previous forecast growth rate of 20 % due to lower than expected growth in yarn exports MY 2015/2016, which was 11 % versus 18 % in the MY 2014/2015. For MY 2016/2017, Post forecast U.S. exports of cotton to Vietnam to increase about 10 % over MY2015/2016.
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 the export and domestic markets.
Vietnam is one of a very few countries in Asia that have expanded their yarn spinning sector in recent years. Currently, there are 100 spinning mills with about 6.3 – 6.5 million spindles (equivalent) for an estimated capacity of over 900000 tons of cotton-based and man-made yarns in Vietnam. Industry experts estimate that new and existing spinning projects registered in 2016 will increase the number of spindles in Vietnam from 6.3 – 6.5 million in 2014/2015 to 8.27 million in 2016/2017.
Vietnam’s cotton consumption has been increasing strongly at an average rate of 22 %, per year, for the last five years. Domestic cotton consumption for MY 2014/2015 reached 935900 tons, equivalent to 4.29 million bales, valued at USD 1.55 billion, a sharp increase of 35 % in quantity and 11 % in value over the previous year. Vietnam’s cotton imports in MY2015/2016 increase to nearly 1 million tons, up 7 % over MY 2014/2015, but less than 1.17 million tons that Post forecasted in the annual report. This situation is attributed to increasing Vietnam yarn exports to China, up 17 % to 559600 tons in MY 2015/2016.However, the increase was much lower than the growth rate of 40 % in MY 2014/2015. The table below shows in marketing year, Vietnam’s exports of yarns to its largest importer- China.
Post forecast Vietnam cotton consumption to ramp up by 10 % in MY 2016/2017 over MY 2015/2016 based on several key factors including:
1) China continues to import yarns from Vietnam at a lower growth rate due to Chinese yarns becoming more competitive,
2) global cotton price is likely to stable at a low level,
3) additional spinning capacity.
Higher exportable supplies of U.S. cotton in MY 2016/2017 to the global markets in general and to Vietnam in particular are expected as production is projected to increase about 10 %, price is likely stable at low level and stocks remain flat. These three key elements will definitely support the U.S. export of more cotton to the growing Vietnamese market. Post forecasts U.S. cotton exports to Vietnam will reach another record in the MY 2016/2017 at an estimated rate of 10 %.
Table 13 illustrates monthly average price of cotton imported into Vietnam in recent marketing years. Cotton import price decreased steadily during MY 2015/2016.
Price of seed cotton continued to decrease from USD 0.49/kg in MY 2014/2015 to USD 0.40 in MY 2015/2016, down about 8 %. The domestic price for cotton continues to be influenced by international prices because domestic cotton production is negligible – less than 1 % of the total cotton consumption.
Bank interest rates gradually softened towards the end of MY 2015/2016, allowing cotton users and traders to carry larger inventories. However, stocks-to-use ratio is forecast at a lower rate due to the following reasons:
• Cotton price has rapidly declined as China has reduced cotton imports. There is growing concern among businesses in the sector that price could decline further. As a result, local spinners do not want to keep large stocks, which would lower their profitability.
• China’s import reduction seriously affects global reserves. In other words, local importers can easily and competitively source cotton and, therefore, do not need to keep large stocks.
Post estimate the stocks-to-use ratio in MY 2016/2017 remains low at about 15 %
Tariff on Cotton
Cotton lint (HS code 5201 and 5203) has a zero tariff but a 5 % value added tax is assessed.
Tariff on cotton yarn
Cotton yarn (HS code 5205-5206-5207) has a 5 % tariff and a 10 % value added tax.
Biotech Policy and Cotton Production
Commercialisation of biotech cotton is not yet approved in Vietnam. However, confined field trails for biotech cotton are authorized. To date, field trials have not been conducted.
Related NEWS from Vietnam
Vietnam is the latest global expansion for Unifi’s REPREVE
Unifi, Inc. continues to expand its global footprint of REPREVE® recycled fibre by entering into Vietnam with support from Century Synthetic Fiber Corporation, now a licensed manufacturer of REPREVE. Century Corporation will manufacture, sell and distribute REPREVE filament yarn within Vietnam, and Unifi Textiles (Suzhou) Co., Ltd. (UTSC) – Unifi’s subsidiary in China – will manage sales and distribution of REPREVE filament yarn exported from Vietnam. This collaboration will open distribution channels for REPREVE in a key apparel-producing region, helping to fulfill increasing demand and shorten lead times to the Company’s customer base.
Headquartered in Ho Chi Minh City, Vietnam, Century Synthetic Fiber Corporation is one of the largest polyester yarn manufacturers in Vietnam. Century Corporation was established more than 15 years ago and continues to invest in its operations and expand capacity today.
“Vietnam has been a region of focus for brands and retailers over the past few years,” said Tom Caudle, president of Unifi, Inc. “The growth in the region cannot be ignored, with exports of approximately USD 27 billion of apparel and textiles in 2015, and expectations to grow to $30 billion in 2016. Within the past 18 months, we’ve grown distribution of REPREVE to include Turkey, Taiwan, Sri Lanka and now, Vietnam.”
Jay Hertwig, vice president of global brand sales, marketing and product development for Unifi, added, “This is a strategic position in growing the global supply chain for REPREVE and will allow us to expand into other Premium Value Added (PVA) products in the near future. A presence in Vietnam will enable Unifi to meet sourcing requests and increasing demand from our customers wherever they choose to do business.”
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