Favorable cotton prices relative to synthetic fibers prices, combined with the expansion of large mills, have led to higher imports and consumption of cotton. Assuming stable cotton prices, the trend is expected to continue to MY 2015/16. Post therefore estimates MY 2014/15 Indonesian cotton imports to increase by 10 percent to 3.28 million bales and MY 2015/16 to further increase to 3.5 million bales. The depreciated rupiah supports textile and yarn exports.

Executive Summary

The Indonesian Rupiah continues to decline, reaching Rp. 13,022/$1 on March 5, 2015. This trend is expected to continue through CY2015, creating export opportunities for Indonesian textiles. The Indonesian Textile Association (API, Asosiasi Pertekstilan Indonesia) reports that Indonesian textile exports increased by 0.6 percent to $12.85 trillion during calendar year (CY) 2014, (compared to $12.78 trillion in CY 2013). This includes an export increase of cotton fabrics from 29,000 metric tons (MT) in CY 2013 to 188,000 MT in CY 2014. Japan, Belgium, Italy, and the United States are Indonesia's major export destinations for cotton fabric. The increase in cotton fabric exports has more than offset the slight decline in cotton yarn exports.

Production

Indonesia produces 0.3 percent of its total domestic cotton demand, with official reports indicating that production has decreased an average of 24.79 percent annually since 2008. Cotton production declines are due to high production costs as well as agronomic risks due to excessive rainfall. Given these concerns, local cotton production has been marginalized to intercropping systems or less productive lands primarily in South Sulawesi, East Java, West Nusa Tenggara, and Central Java. Other limiting factors include the conversion of land to nonagricultural uses and financial constraints that limit access to high yielding varieties and more efficient cultivation practices. As a result, Post estimates that cotton production will decline to 21,000 bales in MY 2014/15 and MY 2015/16.

Consumption

The Indonesian spinning sector produces spun yarn and sewing thread. The sector is expanding, having grown from 251 companies in CY 2012 to 260 companies in CY 2013, with total install capacity growing from 3.094 million metric tons (MMT) of yarn to 3.483 MMT. In CY 2013, Indonesian spinning mills ran at 86.2 percent capacity, with a total of 10.967 million spindles and 179,385 rotors, compared to 10.21 million spindles and 175,513 rotors in CY 2012. In 2013, industry sources reported that the Indonesian spinning industry consumed a total of 2.6 MMT of fiber as raw material annually, consisting of cotton (26 percent), man-made fiber (73 percent), and others (1.1 %). Indonesia exports approximately 30 percent of its yarn production.

A gradual increase in electricity tariffs since May 2014 has increased synthetic fiber production costs, pushing up synthetic yarn and thread prices. Simultaneously, Chinese cotton production policy changes and higher international cotton supplies have helped drive cotton prices down, while cotton yarn prices remain high relative to synthetic yarn. As a result of these factors, Indonesian spinners have switched from synthetic fibers to cotton.

Industry contacts report that the GOI implemented an "Automatic Tariff Adjustment" on electricity tariffs for customers using 1,300 VA, as of January 1, 2015. As per Ministry of Energy and Mineral Resources regulation No. 31/2014, electricity tariffs are now based on exchange rates, average crude oil prices, and inflation. Most of Indonesia's yarn producers are included in this category. Indonesian electricity tariffs are among the highest in Asia, thus lowering Indonesia's competitiveness as a cotton yarn producer and inhibiting potential growth for exports.

Due to favorable cotton prices and supplies, Post estimates that MY 2014/15 Indonesian cotton consumption will increase to 3.25 million bales from 3.05 million bales. MY 2015/16 Indonesian cotton consumption is expected to increase to 3.4 million bales due to expanded mill capacity and an expected decrease in international cotton prices.

Stocks

Despite declining cotton prices, rising storage costs prevent Indonesian spinners from maintaining large inventories. As a result, spinners prefer to source raw materials on an as-needed basis. Therefore, Post estimates MY 2014/15 Indonesian ending stocks will slightly decline to 542,000 bales from previous estimate of 550,000 bales. Post's MY 2015/16 cotton ending stock estimate is expected to increase slightly to 607,000 bales, tracking with expected higher imports and consumption.

Marketing

Large and export-oriented manufacturers with stronger cash flows are expanding their capacity through the procurement and installment of new machineries. Unlike smaller mills using 20 year old technology, these larger mills are using newer and more efficient cotton spinning technology. There is strong demand for Indonesian textile products in the Indonesian market, although local textile manufacturers face strong competition from lower-priced imports. Declining textile exports to the United States and other ASEAN countries were offset by rising demand from Japan and Europe throughout CY 2014.

Based on the above-mentioned situation as well as import data, Post estimates MY 2014/15 Indonesian cotton imports to 3.28 million bales compared to the previous estimate of 3.15 million bales. Assuming higher cotton supplies will decrease prices, and an improving world economy will increase demand for Indonesian textiles, Post forecasts MY 2015/16 Indonesian cotton imports to further increase to 3.5 million bales.

During the first five months of MY 2014/15 Brazil overtook the United States as the largest cotton supplier to Indonesia with a total market share of 45 percent. The United States and Australia followed with 22 percent and 13 percent market share respectively. Despite quality issues, Indian, Brazilian, and African cotton are considered adequate by Indonesian industry standards. Indonesia's primary yarn export destinations were China (68 percent), Japan (15 percent), South Korea (5 percent), and Hong Kong (4 percent) in CY 2014.

Policy

The Indonesian Supreme Court revoked GOI Regulation No. 31.2007 on February 25, 2014, ending the ten percent value added tax (VAT) exemption for cotton. The VAT was implemented on July 25, 2014. Industry reports that the 10 percent VAT on cotton will be passed on as higher end products prices, reducing export competitiveness. Indonesian spinning mills import more than 90 percent of their cotton demand.

PSD COTTON (HS CODE 5201) IN BALES

Cotton

2013/2014

2014/2015

2015/2016

Market Begin Year

Aug 2013

Aug 2014

Aug 2015

Indonesia

USDA Official

New post

USDA Official

New post

USDA Official

New post

Area Planted

0

10

0

10

0

10

Area Harvested

9

9

9

9

0

9

Beginning Stocks

641

641

600

550

0

542

Production

25

25

25

21

0

21

Imports

2,989

2,989

3,250

3,280

0

3,500

MY Imports from U.S.

0

700

0

705

0

710

Total Supply

3,655

3,655

3,875

3,851

0

4,063

Exports

5

5

5

7

0

7

Use

3,050

3,050

3,200

3,250

0

3,400

Loss

0

50

0

52

0

52

Total Dom. Cons.

3,050

3,100

3,200

3,302

0

3,452

Ending Stocks

600

550

670

542

0

604

Total Distribution

3,655

3,655

3,875

3,851

0

4,063

1000 HA, 1000 480 lb. Bales, PERCENT, KG/HA

PSD COTTON (HS CODE 5201) IN MT

Cotton

2013/2014

2014/2015

2015/2016

Market Begin Year

Aug 2013

Aug 2014

Aug 2015

Indonesia

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Planted

0

10

0

10

0

10

Area Harvested

9

9

9

9

0

9

Beginning Stocks

139,563

139,563

130,636

119,750

0

118,008

Production

5,443

5,443

5,443

4,572

0

4,572

Imports

650,784

650,784

685,838

714,143

0

762,042

MY Imports from U.S.

0

0

0

0

0

0

Total Supply

795,790

795,790

821,917

838,464

0

884,622

Exports

1,089

1,089

1,089

1,524

0

1,524

Use

664,066

664,066

674,952

707,611

0

740,270

Loss

0

10,886

0

11,322

0

11,322

Total Dom. Cons.

664,066

674,952

674,952

718,933

0

751,592

Ending Stocks

130,636

119,750

145,877

118,008

0

131,507

Total Distribution

795,790

795,790

821,917

838,464

0

884,622

Stock to Use %

20

18

22

17

0

17.73

Yield

605

0

605

0

0

0.0000

COTTON IMPORT TRADE MATRIX (MY 2013 - 2015)

Country

Indonesia

Commodity

Cotton

Time Period

Aug - Jul

Units:

1,000 MT

Units:

1,000 MT

Imports for:

2012/13

Imports for:

2013/14

Imports for:

2014/15*

U.S.

116

U.S.

152

U.S.

64

Others

Others

Others

Brazil

152

Brazil

115

Brazil

129

Australia

111

Australia

79

Australia

38

Malaysia

38

India

56

Greece

18

India

29

Cote d'Ivoire

34

Argentina

17

Greece

23

Mali

25

Cote d'Ivoire

8

Mali

23

Burkina Faso

21

India

6

Cote d'Ivoire

22

Greece

16

Spain

4

Tanzania

22

Tanzania

16

China

2

Mozambique

19

Pakistan

15

Pakistan

15

Mozambique

13

Argentina

11

Argentina

12

Nigeria

11

Malaysia

7

Uganda

11

Spain

6

South Africa

10

South Africa

6

Paraguay

6

Uganda

4

Mexico

3

Paraguay

1

Spain

3

Senegal

1

Total for Others

509

Total for Others

427

Total for Others

222

Others not Listed

28

Others not Listed

80

Others not Listed

2

Grand Total

653

Grand Total

659

Grand Total

288

Source: Global Trade Atlas.

Note: *for the period of Aug – Dec 2014 only.

COTTON EXPORT TRADE MATRIX (MY 2013 – 2015)

Export Trade Matrix

Country

Indonesia

Commodity

Cotton, HS Code 5201

Time Period

Aug-Jul

Units:

MT

Units:

MT

Exports for:

2012/13

2013/14

2014/15

U.S.

0

U.S.

0

U.S.

0

Others

Others

Others

Japan

406

Vietnam

173

Sri Lanka

300

Thailand

743

Sri Lanka

148

Vietnam

157

India

6

Taiwan

132

Taiwan

32

Malaysia

24

Saudi Arabia

21

Total for Others

1155

453

534

Others not Listed

8

0

2

Grand Total

1163

453

536

Source: Global Trade Statistics.