Structural Changes and Prospects of Development in the European Cotton Market

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.