Vietnam Erodes Indian Share In China's Cotton Yarn Market

Market Intelligence

Vietnam Erodes Indian Share In China's Cotton Yarn Market

China's import of cotton yarn shrunk substantially in the fourth quarter of 2015, but import of Vietnamese cotton yarn did not reduce and witnessed y-o-y and m-o-m increase in December 2015. Falling cotton yarn import was mainly due to the reduction of imports of Indian and Pakistani cotton yarn.

Currently, spinners in Vietnam witness sound orders and many spinners run at full capacity. Monthly import of Vietnamese cotton yarn may be flat in the short run. And the long-term trend? Tariff-free is the last line of defense for Vietnamese cotton yarn, and is this line reliable?

India is the biggest rival for Vietnam in competing Chinese cotton yarn market. Market share of Indian cotton yarn has been eroded by Vietnamese cotton yarn in recent years. Given current forward cotton yarn price, Indian cotton yarn has become uncompetitive, which can be reflected in import volume in the fourth quarter of 2015.

Price of Indian and Vietnamese cotton yarn 32S is almost flat in terms of price under USD basis, mainly staying around $2.40-2.42/kg for 32S for airjet. But once calculated import duty, advantage of Vietnamese cotton yarn becomes obvious. Price spread between Vietnamese 32S for rapier and Indian 32S for airjet is around 1200 yuan/mt. Besides, price gap of Vietnamese 32S for airjet and Indian 32S for airjet is around 800 yuan/mt.

Price disparity between RMB price of Vietnamese forward 32S and Chinese cotton yarn 32S is narrowing. Once cotton is auctioned at low price in China in 2016, import of Indian cotton yarn is likely to reduce even further. Benefiting from tariff free edge, Vietnamese cotton yarn may struggle for a short time, but the advantage may weaken when low cotton price becomes a normal status in China.

All in all, low-priced cotton auction will be a double-edged sword for Vietnamese cotton yarn. Vietnamese cotton yarn needs to find a balanced position between Indian and Chinese cotton yarns. However, the time and price of cotton auction is still uncertain, so it is hard to predict whether import of Vietnamese cotton yarn can keep rising or not in long run.