THE coronavirus outbreak and its potential ramifications have lowered China’s cotton consumption, more than offsetting any potential positive impacts from the United States-China trade war truce, according to the United States Department of Agriculture (USDA) in its latest assessment.
China’s consumption has been lowered modestly based in part on the initial impacts of the coronavirus outbreak, including lengthened factory shutdowns due to the extended Lunar Holiday.
The 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.
The unknown duration and severity of these effects overshadows 2019/20 consumption developments since last month’s forecast by the USDA.
US-China trade agreement
In contrast, the recently signed trade agreement between the US 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 2020 and world cotton consumption.
This month’s USDA forecast shows no change in either US export or China cotton import forecasts.
The public portion of the 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.