– As lockdowns continue in China and consumption nose dives, a good portion of the 350,000 MT or so of stock held in consignment warehouses is being offered into the export market. From past experience we can tell you that this is not a cheap, or easy exercise and is very much a last resort for the holders of unsold stocks. India is of course a logical destination, but is logistically challenging. Some homes are being found in SE Asia where, whilst demand is not great, some mills do need to fill gaps in coverage created by late shipments from elsewhere.
– Further evidence of the adverse situation in China came in the economic data issued earlier this week. Most notably, retail sales fell by 11.1% year on year. Whilst we still look to the US (and behind it Europe) as the leading drivers of cotton demand, on an absolute level Chinese consumption accounts for an ever increasing share. In fact, based on data from Statista, overall apparel sales in China for 2022 were estimated (pre-lockdowns) at US$ 319 bn, compared to US$ 335 bn in America. It is outdated to simply look at the lockdowns in China as a case of switching western focused demand from one producing centre to another. Issues in China now have a significant impact to total end user demand.
– In the UK inflation reached 9% in April, which is the highest reading in 40 years. Globally inflation is set to eat further into end user demand for textile goods. At the same time, Walmart shares suffered their largest one day drop since 1987 after slashing earnings guidance. Much of the focus for Dec ’22 is on the drought in Texas, and the map below shows that this is not without justification. However, it does seem to us that the focus on production concerns is overshadowing the potentially more significant, drop in total demand. US new crop sales have been strong so far and perhaps this is allowing a false sense of security, but at consumer level the alarm bells should certainly be ringing!