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Insight | Time: Nov 19 2019 10:22AM
Overview on market share of China's imports of cotton yarn originate from Pakistan
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Great changes have taken place in 2019 market share of China's imports of cotton yarn originate from Pakistan mainly because tariff issues affected some companies operating, and the resulting changes in customs data also raised questions for imported yarn market. So what about domestic and foreign markets of China's imports of cotton yarn originate from Pakistan after three quarters in 2019? Price of Pakistani cotton continued to rise, what is the impact of domestic cotton and cotton yarn market, and what is the impact on the international cotton and cotton yarn market?

China-Pakistan cotton yarn trade overview
According to customs data, China's imports cotton yarn originate from Pakistan reached 97.5kt, down by 60% year-on-year. According to market research, this was not the case. A large number of China's imports of cotton yarn originate from Pakistan were not captured by statistical system due to customs data statistical caliber problem. It was estimated that China's imports of cotton yarn originate from Pakistan accounted for 240kt in Jan-Sep 2019, down by 10.5% year-on-year.

According to Pakistani customs data, export of Pakistani cotton yarn was 343kt, down by 8.9% year-on-year in Jan-Sep 2019, of which the proportion of exports to China remained steady or increased slightly. Overall China and Pakistani cotton yarn trade conducted normally, and China's imports were mainly stable. According to market research, some enterprises in the market were unable to enjoy preferential policies, trade volume greatly reduced, and enterprises that can enjoy preferential policies greatly increased their operations. 

Chinese traders and spot markets
From profit of Pakistani cotton yarn imported by Chinese traders, the profit was still tolerable in Q1 and Q2 but then suffered losses after May. According to enterprise research, most companies were at losses, mainly due to the fall in exchange rate, cotton price and cotton yarn price. Those can fully enjoy the preferential policies and the losses were relatively small. In terms of market conditions, the denim market recovered well after Sep-Oct, traders' sales improved significantly, profits gradually recovered, and the market developed. Overall China's imports of Pakistani yarn will be stable in Oct-Dec. However, current implementation period of preferential tariff policy was still in 2019, and that in New Year was uncertain. Traders ordered cautiously about forward yarn with Dec shipment (arrival in Hong Kong in Jan 2020). Overall forward trading kept plain. According to relevant sources in Pakistan, the new FTA agreement has been signed, and all Chinese companies imported Pakistani yarn will be entitled to zero-tariff treatment (not verified).

Pakistani cotton and cotton yarn
2019/2020 cotton production in PCCC is expected to drop from 2.288 million tons on Oct 11 to 2.162 million tons, down by 5.5%, 15.2% lower than the initial cotton production target. Pakistani cotton rose rapidly recently. After Jul 2019, the price spread between Pakistani cotton price and international cotton prices narrowed. In short runs, it was mainly because Pakistani cotton came to the market slowly and the production was not as expected in the short-term. In long runs, overall Pakistani domestic cotton supply was tight. In addition, Pakistan now has a tax of nearly 11% on imported cotton yarn, leading to higher cost of imported cotton, which was one of the factors driving the rise of Pakistani cotton price.

Due to the sharp depreciation of Pakistani Rupee and China's import tariff policy on imports of Pakistani yam, the profit of Pakistani cotton yarn exports to China continued to be good in 2019, and spinners ran well.

In line with increasing domestic cotton prices in Pakistan, procurement of US cotton in Pakistan increased significantly year-on-year. Till Oct 17 2019, sales of 2019/20 US cotton have reached 98kt while that was only 42kt in the same period of last year, up by 133% year-on-year.

There was a rumor that the Pakistani spinners purchased more Vietnamese cotton yarn, mainly carded 30S and 32S. In Jul to Sep, export of Pakistani yarn originate from Vietnam rose sharply compared with that in same period of previous years, mainly driven by high cotton price and continued good Pakistani domestic demand.

At present, India and Pakistan are facing a stagnation. Business and trade activities stagnate. While Pakistani domestic demand is good, it is impossible to import cotton and cotton yarn from India. So there is a trend of shifting to import US cotton and Vietnamese yarn.

From export value of textiles and apparel, Pakistani textile and apparel exports in Jan to Sep 2010 were 10.06 billion USD, down by 1.3% year-on-year. However, Pakistani rupee depreciated sharply by 11.5% in 2019. Pakistani textile and apparel exports volumes increased sharply, which was consistent with the survey of Pakistani companies.

China and Pakistani cotton yarn trade volume was generally stable in 2019. Chinese traders mainly suffered losses from early-2019, but Pakistani mills enjoyed tolerable profits, mainly due to the sharp rupee depreciation and China’ s tariff policy on Pakistani yarn. Amid changes in tariff policies under the FTA, Chinese traders ordered cautiously, leading to slow sales in Pakistani yarn with Dec shipment. In addition, Pakistan's cotton prices rose sharply amid production cut, slower listing, tolerable downstream demand and high tariffs on imported yarn. Due to high cotton prices and the stagnant trade between India and Pakistan, Pakistan' imports of US cotton and Vietnamese yarns increased somewhat. In Jan to Sep 2019, Pakistani textile and apparel exports fell slightly by 1.3%, but the export volume may actually increase substantially due to rupee depreciation.
[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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