structural changes and prospects of development in the european cotton market andrew s. hursthouse...
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Structural Changes and Prospects of Development in the European Cotton Market
Andrew S. Hursthouse
Vice President
International Cotton Association
Polite Request….Please don’t shoot the messenger…
Economic History takes no prisoners
The Industrial Revolution
UK Cotton Consumption
• 1910 = 5 myn bales approx.• 1950 = 5 myn bales• 1960 = 3.5 myn bales• 1965 = 3 myn bales• 1970 = 725k bales• 1980 = 220k bales• 1990 = 140k bales• 2000 = 95k bales• 2007 = 20k bales
Consider • Euro excldg Turkey = Austria, Belgium-Lux, Denmark,
Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, UK
• Production• Consumption compared to:• Turkey• Major Asia excldg China = China, Hong Kong, Indonesia,
Japan, S.Korea, Philippines, Taiwan, Thailand• China • & South Asia = Bangladesh, India, Pakistan, Sri Lanka• Associations & Merchandising
Spain & Greece
• Consistent production under EU subsidy conditions
• Proximity to demand
• Strong innovation and quality processes
• Change to subsidy structure is cause of most recent decline
PRODUCTION - Spain & Greece
0
500
1000
1500
2000
2500
3000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
'000
s b
ales
x 4
80lb
s
Spain Prodn
Greek Prodn
Expectations
• Challenge to subsidy changes
• Key is government action but Greece looks like may at least continue at current levels
Severe Decline in ConsumptionEU 15 (excl. Turkey) CONSUMPTION
0
1000
2000
3000
4000
5000
6000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
,000
bs
x 48
0lb
s
Total
CONSUMPTION - Germany/France/Spain
0
500
1000
1500
2000
2500
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
'00
0s
ba
les
x 4
80
lbs
Germany
France
Spain
CONSUMPTION - Italy
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
'000
s ba
les
x 48
0lbs
Italy
Reasons
• Cost base• Labour costs – shift away to service
industries and the relatively cheaper costs of competition
• Energy costs – power, water, land• Relative tax incentives• Environmental costs – social issues• Location vs sources of production
Reasons
• Multi Fibre Agreement (1974-2004 a.k.a A.T.C) – expired 1 January 2005
• Shift to Turkey• Generation shift and prohibitive buying
practices• Shift from Ilyichevsk to Southern Route and
Far East
WORLD CONSUMPTION
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
130,000
140,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
'00
0s
ba
les
x 4
80
lbs
World
Turkey Consumption
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
'000
s b
ales
x 4
80lb
s
Mill Use
ASIAN CONSUMPTION GROWTH
0
10,000
20,000
30,000
40,000
50,000
60,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
'00
0s
ba
les
x 4
80
lbs
Maj Asia exc China
S.Asia
China
YR ON YR %AGE CHANGE
-0.25
-0.2
-0.15
-0.1
-0.05
0
0.05
0.1
0.15
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
%a
ge
ch
an
ge
World YOY % change
EU15 YOY % change
Summary impact
• Relative competitiveness of 1kg 30s combed yarn DDU Hamburg
• Turkey 2.50 EUR/kg
• India 2.10 EUR/kg
• China 1.90 EUR/kg
• Germany 2.90 EUR/kg
Reactions
• Straight selling of spindle capacity• Overseas investment – Mauritius, Eastern Europe• Investment in viscose, polyester & blended yarns• E.g 2/3 yrs ago 70% cotton vs currently 30% • Cotton sourced gin direct - Greece• Any CIS
Expectations
• “trend” will not reverse
• remaining players continue to seek niche technical advantage – “de-commoditising” their production
• source remaining cotton needs from Greece and CIS
Associations
• Majority had domestic focus
• LCA position and transition to ICA
• Bremen incorporation of ICA Rules on June 29th 2006
• Further commonality may be achieved in future.
Merchandising
• Important hub for merchant houses• Key trading offices of major firms non US
operations• Expanding operations globally from this base • Some closures of niche firms • Best of the remaining serve a key function in the
supply chain • Expect this to continue
Conclusion
• Pain has been largely taken
• Congratulations to those that remain
• The wheel of Economic History will keep turning.