Indonesia. Cotton and Products Update. Dec 2014 Jan. 12, 2015
Favorable cotton prices relative to synthetic fibers prices, coupled with the expansion of large mills, have led to higher imports and consumption of cotton. Based on import realization, Post revised MY 2012/13 Indonesian cotton imports to 3 million bales from the previous estimate of 2.6 million bales. MY 2013/14 Indonesian imports of cotton are estimated to remain at 3 million bales, and MY2014/15 are forecast to reach 3.1 million bales. The depreciated rupiah supports textile and yarn exports.
The weakening of the rupiah since July 2013 has created Indonesian textile export opportunities. The trend is expected to continue to CY2014. The Indonesian Textile Association (API, Asosiasi Pertekstilan Indonesia) reported that for the period of January to April 2014, Indonesian textile exports have increased by 1.8 percent to $4.3 trillion, compared to the same period of January to April 2013 of $4.2 trillion. This includes a cotton yarn export increase from 51,000 metric tons (MT) for the period of January to May 2014, compared to the same period of last year of 43,000 MT. China, Japan, and South Korea have been the major destinations for Indonesian cotton yarn exports.
The Indonesian spinning mill sector produces spun yarn and sewing thread. The sector is expanding, having grown from 234 companies in CY 2011 to 251 in 2012, with total install capacity growing from 3.045 million metric tons (MMT) of yarn to 3.094 MMT. In CY 2012, Indonesian spinning mills ran at about 70 to 80 percent capacity, with a total of 10.8 million spindles and 175,513 rotors, compared to 10.2 million spindles and 175,113 rotors in CY 2011. Indonesia’s Ministry of Industry reports that the spinning industry consumes approximately 1.2 MMT of fiber as raw material annually, consisting of cotton (45 percent), synthetic fiber (45 percent), and rayon (10 percent). 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.
Due to favorable cotton prices and supplies, Post revises the MY 2013/14 Indonesian cotton consumption estimate from 2.652 million bales to 3.05 million bales. Post also revises MY 2012/13 Indonesian cotton consumption from 2.6 to 3.03 million bales, based on revised data submitted by exporters. Relatively higher margins from cotton yarn production and expected decrease in international cotton prices throughout the last semester of CY 2014 will increase MY 2014/15 Indonesian cotton consumption to 3.103 million bales.
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’s MY 2013/14 Indonesian ending stock estimate is revised down to 448,000 bales from 474,000 bales. Post’s MY 2014/15 cotton ending stock estimate is expected to increase slightly to 467,000 bales, tracking with expected higher imports and consumption.
Cotton imports are increasing, based on competitive cotton prices. While some small spinning mills are still suffering from high price contracts in 2011 that led to tight cash flows and the shut downs of some small spinning mills, production losses from these closures were offset by the expansion of larger, export-oriented manufacturers with stronger cash flows. Unlike smaller mills using 20 year old technology, these larger mills are using newer, 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. Stagnant textile exports to the United States are offset by rising demand from Japan, Europe, and neighboring ASEAN countries during the first quarter of CY 2014.
Based on the above-mentioned situation as well as import data, Post revises MY 2012/13 and MY 2013/14 Indonesian cotton imports to 3 million bales compared to the previous estimate of 2.6 million bales and 2.65 million bales respectively. Assuming higher cotton supplies will decrease prices, and an improving world economy will increase demand for Indonesian textiles, Post forecasts MY 2014/15 Indonesian cotton imports to further increase to 3.1 million bales.
MY 2013/14 cotton exports to Indonesia were led by the United States (31 percent), followed by Brazil (24 percent), and Australia (16 percent). Despite quality issues, Indian, Brazilian, and African cotton are considered adequate by Indonesian industry standards. Indonesia exported its yarn to China (67 percent), Japan (14 percent), South Korea (4 percent), and Bangladesh (3 percent) during CY 2013.
The Indonesian Ministry of Trade implanted a safeguard duty on cotton yarn (other than sewing thread) on May 28, 2014