The novel coronavirus (CV) outbreak and its potential ramifications have lowered China’s cotton consumption, more than offsetting any potential positive impacts from the US-China trade truce, according to the US department of agriculture (USDA). The unknown duration and severity of these effects overshadows 2019-20 cotton consumption in China.
Noting that the level of uncertainty has risen significantly since January 2020, the Foreign Agricultural Service (FAS) of the USDA said, “China’s consumption is lowered modestly based in part on the initial impacts of the CV outbreak, including lengthened factory shutdowns due to the extended Lunar Holiday. Current impacts include a slowdown across the entire textile sector as travel restrictions and plant shutdowns have reduced commercial activity, and to a lesser extent, a slowdown in consumer demand for apparel and other retail products.”
“In contrast, the recently signed trade agreement between the United States and China has reduced uncertainty, as the threat of escalating trade actions (negatively affecting the cotton sector) is replaced, at least in the short term, by greater potential for easing of trade measures put in place during the dispute. By reducing uncertainty, the trade agreement positively impacts expected income growth in calendar year 2020 and world cotton consumption. Note that a recent reduction in some retaliatory duties by China did not specifically benefit the cotton sector,” the USDA report ‘Cotton: World Markets and Trade’ said.
February month’s forecast shows no change in either US export or China cotton import. The public portion of the Phase One agreement contains no specific commitments on China’s part to increase market access for US cotton, either by removing retaliatory duties on cotton or expanding access in general. The agreement states that purchases will be made at market prices based on commercial considerations.
Current market access for cotton consists of the WTO tariff-rate quota (TRQ) of 894,000 metric tons (tons) at 1 per cent duty with an additional duty of 25 per cent for US cotton; processing licenses (estimated at 200-300,000 tons a year) at zero duty with no additional for US cotton; sliding-scale duty (assumed to be announced as market conditions dictate) with an additional 25 per cent for US cotton; and imports outside these at 40 per cent duty with additional 25 per cent for US cotton. Imports by China’s State Reserve are not subject to duties, but there are currently no announcements for such imports.
Although the Phase One agreement lessened market uncertainty, the CV outbreak is the newest headwind further dampening cotton demand prospects in China. The presence of uncertain market conditions in 2019-20, including the outbreak and initial trade dispute, has helped lower consumption by more than 4 million bales since the initial May forecast and to the lowest total in 4 years, the report said.