Demand is always a key factor in our business and while in the past we have elaborated on the level of demand or how the volume of demand may fluctuate, we now have to keep an eye on the ever changing flows and ongoing shifts, specifically in the locations that demand for Australian cotton finds itself. We are currently going through exciting times, seeing sizeable switches in demand not only from China to Southeast Asia, but also from China to the Indian Sub-continent.  It is not out of simple curiosity that growers need to know where their cotton will be used, but critical business reasons that inform themselves as to where these key demand areas are where their cotton will eventually be processed into yarn.  As detailed in the chart below we have seen a continual slide in overall consumption in China over the last six years whilst countries like India have continued gaining with a steady growth rate since 2000, with the most noticeable growth over the last five years. With this trend likely to continue at least for the short term it is important to be aware of who is picking up the slack and taking this demand. 

There are many factors that have contributed to the overall reduction in consumption of cotton in China but it is safe to say the main factor has been governmental intervention, not only through State Reserve releases, but also quota schemes.  As a result, the initial shift in demand took place close to China, in destinations such as Vietnam and Indonesia, but as this scenario continues to evolve, especially over the last and current seasons, we have seen a sizable growth in demand from the Sub-continent.

Moving away from general consumption trends and focussing directly on the destination for Australian cotton, we can see that in the past five to seven years China has dramatically decreased, falling from its peaks in 2012/13 of taking an impressive 68 per cent of the Australian crop, to only 47pc, so far, in the 2016/17 season (data to May 2016). During this same time period we have seen India moving from consuming only a mere 0.25pc of the Australian crop back in 2011/12 to six pc so far in 2016/17. 

While discussing trends with most major exporters along with some of the world’s largest shipping lines, there is one common theme this season, and that is the explosive demand for Australian cotton from India over the June – July 2016 shipment periods which also continues to grind into August. 

As you can see in Figure 1, there are some slight fluctuations in the overall trend out of China, but the big picture continues to be one of less demand there for Australian cotton.  In order to delve into the question of “Where has that demand shifted?”, it makes it a bit clearer to remove China from the equation and really focus on who is growing their demand for Australian cotton in particular. Vietnam was originally a big taker, stepping in and absorbing any extra demand that was leaving China not only by traditional Vietnamese owned mills but mainly Chinese funded mills that were shifting capacity offshore to escape wage, tariff and State Reserve issues.  However, in addition to Vietnam, India seems to be the new kid on the block with a fresh appetite for Aussie which hasnΆt been seen before.

After identifying where the demand is heading the only remaining question is why has it shifted, and how can we continue to be the cotton of choice for these mills? 

The first answer is relatively easy and it is a mere lack of availability for the cotton with a staple of 37 and longer and strength greater than 30 gpt for local Indian consumption.  A little over 15pc of IndiaΆs yarn production goes into making 40+ to 80 count yarns which specifically needs this higher quality. Most of the main fill-in for this demand is the domestic MCU-5 from Andhra Pradesh and Bunny from Maharashtra.  India had a drop in production which created a vacuum later in the year causing a significant tightness for high grade cotton which was either not available, or held tight in the hands of local traders.  With such tightness, the Indian domestic crop was being priced at a premium to the Australian crop that had just begun its harvest which lit a spark of new demand for the Australian crop, as we havenΆt witnessed before.   Another option that traditionally satisfies this need was the SJV and CA/AZ upland crops, but these origins have been decreasing sharply the last few years, and since 2011 weΆve seen California upland drop 70% and Arizona fall 65%.  This is mostly due to lack of water availability and movement in California towards permanent planting, such as nut trees.

Even though we donΆt see any major growth happening in the cotton sector in general, there is a silver lining for growths such as Australian who fill a specific need that cannot be filled by the cheapest growth available at the time.  Its spin-ability along with its long staple, and premium strength will continue to make Australian cotton a desired growth among spinners who create yarn for high-end products.  The fact that it is a Southern Hemisphere crop which is available at the time that IndiaΆs domestic high-grades are running out is just another reason for its preference.  It is our job as an industry to realise these changing trends in demand in order to sustain the most desirable outcome, which is consistent strong demand and superior prices.