Global Demand OutlookCotton IncorporatedFebruary 2019
40
50
60
70
80
90
100
110
120
130
Global Mill‐Usemillion bales
Global Demand Accelerated
Drivers of Global Demand
6.1 billion
2000
7.4
2015Source: UN
Population growth
Drivers of Global Demand
2000
7.4
2015Source: UN
+20%
6.1 billion
Population growth
Drivers of Global Demand
2000
7.4
2015
8.6
2030Source: UN
+20%
+16%
6.1 billion
Population growth
Drivers of Global Demand
Sources: UN, OECD GDP growth in real terms
2000
Population growth
Economic growth
Drivers of Global Demand
2000 2015
+67%
Sources: UN, OECD GDP growth in real terms
Population growth
Economic growth
Drivers of Global Demand
2000 2015 2030
+60%
+67%
Sources: UN, OECD GDP growth in real terms
Population growth
Economic growth
Drivers of Global Demand
Sources: UN, OECD
Population growth
Economic growth
Per capita income growth strong,forecast to continue
40
50
60
70
80
90
100
110
120
130
Drivers of Global Demandmillion bales Global Demand Above Trend
Population growth
Economic growth
Per capita income growth strong,forecast to continue
0.50
0.70
0.90
1.10
1.30
1.50
1.70
1.90
2.10
2.30
Drivers of Global Demandratio of Chinese cotton to Chinese polyester pricesCotton Prices Stabilized versus Polyester
Source: Emerging Textiles
Population growth
Economic growth
Per capita income growth strong,forecast to continue
Headwind of share loss abating
Drivers of Global Demand
45%
50%
55%
60%
65%
70%
Source: USDA, seasonally‐adjusted
Cotton’s Share of U.S. ApparelPopulation growth
Economic growth
Per capita income growth strong,forecast to continue
Headwind of share loss abating
Drivers of Global Demand
0
5
10
15
20
25
30Man‐Made
Cotton
Source: USDA, seasonally‐adjusted
Bale Equiv. of U.S. Apparel Importsmillion bales
Population growth
Economic growth
Per capita income growth strong,forecast to continue
Headwind of share loss abatingCotton Bale Volume ‐25%
(versus 2006)
Drivers of Global Demand
0
5
10
15
20
25
30Man‐Made
Cotton
Source: USDA, seasonally‐adjusted
Bale Equiv. of U.S. Apparel Importsmillion bales
Consumer Spending +13%
Consumer Prices +3%
Total Bale Volume ‐6%(versus 2006)
Population growth
Economic growth
Per capita income growth strong,forecast to continue
Headwind of share loss abatingCotton Bale Volume ‐25%
(versus 2006)
Drivers of Global Demand
Source: USDA, seasonally‐adjusted
Change in Average Product Weight2006‐07 to 2017
‐5%
‐14%
‐9%
‐10%
Population growth
Economic growth
Per capita income growth strong,forecast to continue
Headwind of share loss abating
Drivers of Global Demand
80
85
90
95
100
105
Source: Cotton Incorporated import database, seasonally‐adjusted
Population growth
Economic growth
Per capita income growth strong,forecast to continue
Headwind of share loss abating
Change in Average Product Weightindex 2006‐07=100
Headwind of wt loss has abated
40
50
60
70
80
90
100
110
120
130
Drivers of Global Demandmillion bales Global Demand Above Trend
Population growth
Economic growth
Per capita income growth strong,forecast to continue
Headwind of share loss abating
Headwind of wt loss has abated
Drivers of Global DemandPopulation growth
Economic growth
Per capita income growth strong,forecast to continue
Headwind of share loss abating
Headwind of wt loss has abated
Government support in China 0
1
2
3
4
5
6
7
8
China Vietnam Bangladesh India Turkey Pakistan
million balesChange in Mill‐Use 14/15 to 18/19
Weaker Macroeconomic EnvironmentVolatile exchange rates
104
106
108
110
112
114
116
Jan‐18 Mar‐18 May‐18 Jul‐18 Sep‐18 Nov‐18 Jan‐19
Jan 2006=100Dollar Climbs Sharply in Spring/Summer
Weaker Macroeconomic Environment
Apr‐18 Oct‐18 Jan‐19
IMF Forecasts for Global GDP Growth in 2019
3.9
3.7
3.5
Volatile exchange rates
Falling forecasts for global GDP
Uncertain trade environment
percent change, constant prices
U.S.‐China Tariff Situation$34 billion of goods on both sides25 percentage point (ppt) tariff increases for both
July 6
Aug 23
Sept 24
$16 billion of goods on both sides25ppt tariff increases for both
$200 billion of goods for U.S., 10ppt increase$60 billion of goods for China, 5‐10ppt increases
U.S. cotton on China’s July 6 list
U.S.‐China Tariff Situation
36%
14%8%8%
34%
U.S. Exports2010/11‐14/15
China
Turkey
Vietnam
Mexico
Other$34 billion of goods on both sides25 percentage point (ppt) tariff increases for both
July 6
Aug 23
Sept 24
$16 billion of goods on both sides25ppt tariff increases for both
$200 billion of goods for U.S., 10ppt increase$60 billion of goods for China, 5‐10ppt increases
U.S. cotton on China’s July 6 list
U.S.‐China Tariff Situation
36%
14%8%8%
34%
U.S. Exports2010/11‐14/15
33%
20%16%
10%
11%
10%Chinese Imports2010/11‐14/15
China
Turkey
Vietnam
Mexico
Australia
Other
Other
Uzbekistan U.S.
India
$34 billion of goods on both sides25 percentage point (ppt) tariff increases for both
July 6
Aug 23
Sept 24
$16 billion of goods on both sides25ppt tariff increases for both
$200 billion of goods for U.S., 10ppt increase$60 billion of goods for China, 5‐10ppt increases
U.S. cotton on China’s July 6 listBrazil
Evolving Cotton Market
Price Spike(2010/11)
Chinese Gov’t Reserve System
Competing crops
Evolving Cotton Market
Price Spike(2010/11)
Chinese Gov’t Reserve System
Purchases(2011/12‐2013/14)
ImportQuotas
Competing crops
Evolving Cotton Market
Price Spike(2010/11)
Chinese Gov’t Reserve System
Sales(2014/15‐Present)
ImportQuotas
SometimeSoon
Competing crops
Chinese Cotton Situation
0
10
20
30
40
50
60
70total stocks
Chinese Stocks Retreat from Record Highsmillion bales
Sources: USDA (total stocks) & Cotlook (reserve stocks)
reforms enacted
first crop yearwith price guarantees
stocks drawn down since 2014 reforms2017/18 stocks are about half the peak still 30% higher than the average pre‐spike
Chinese Cotton SituationChinese Stocks Retreat from Record Highs
Sources: USDA (total stocks) & Cotlook (reserve stocks)
stocks drawn down since 2014 reforms2017/18 stocks are about half the peak still 30% higher than the average pre‐spike
government to maintain some reservesannounced target of 2.5 million tonscurrent volume estimated at 2.7 mil tons
0
10
20
30
40
50
60
70private stocks
reserve stocks
million balesreforms enacted
first crop yearwith price guarantees
Chinese Cotton Situation
0
10
20
30
40
50
60production
mill‐use
China’s Persistent Production/Use Gapmillion bales
Source: USDA
stocks drawn down since 2014 reforms2017/18 stocks are about half the peak still 30% higher than the average pre‐spike
government to maintain some reservesannounced target of 2.5 million tonscurrent volume estimated at 2.7 mil tons
what does this mean for Chinese imports?government has diminished ability to fill China’s production gapChinese imports will need to triple from 5 to 15 million bales when stocks stabilize
Meeting China’s Coming Import DemandIf China does not get the ten million additional bales of imports from the U.S., where could it come from??Machine‐Picking Exporters
Australia3.9 million bales of total exports in 2017/18
Brazil4.2 million bales of total exports in 2017/18+
Not enough to cover the increase alone,even if all went to China
Source: USDA
Meeting China’s Coming Import DemandIf China does not get the ten million additional bales of imports from the U.S., where could it come from??Machine‐Picking Exporters
India
West Africa
Hand‐Picking Exporters
Australia
Brazil
3.9 million bales
4.2 million bales
5.2 million bales total exports in 2017/18
4.8 million bales total exports in 2017/18
Source: USDA
Central Asia (Uzbekistan + Turkmenistan)1.3 million bales total exports in 2017/18+
Enough to cover the increase,Not enough to cover China’s production deficit,Still have to supply the rest of the world
Meeting China’s Coming Import DemandIf China does not get the ten million additional bales of imports from the U.S., where could it come from??Machine‐Picking Exporters
India
West Africa
Hand‐Picking Exporters
Australia
Brazil
3.6 million bales (18/19)
6.2 million bales (18/19)
4.5 million bales total exports in 2018/19
5.2 million bales total exports in 2018/19
Source: USDA
Central Asia (Uzbekistan + Turkmenistan)1.3 million bales total exports in 2018/19
U.S.15.0 million bales
Meeting China’s Coming Import DemandIf China does not get the ten million additional bales of imports from the U.S., where could it come from??Difficult to see how China can get to ~15 million bales of imports without it somehow involving more U.S. exports – U.S. can still ship direct to ChinaCertain categories of imports not subject to additional tariff
– U.S. may need to fill in gaps left by other exporters who ship more to China
– U.S. fiber‐to‐yarn, yarn‐to‐China trade flow should be supported
Source: USDA
U.S.‐China Tariff Situation
0
2
4
6
8
10
12
14
16
18
20
Aug
Sep
Oct
Nov Dec
Jan
Feb
Mar Apr
May Jun Jul
2018/19
2017/18
5‐Year Avg
million balesU.S. Export Commitment to the World
Source: USDA
U.S.‐China Tariff Situation
0
2
4
6
8
10
12
14
16
18
20
Aug
Sep
Oct
Nov Dec
Jan
Feb
Mar Apr
May Jun Jul
2018/19
2017/18
5‐Year Avg
million balesU.S. Export Commitment to the World
Source: USDA
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Aug
Sep
Oct
Nov Dec
Jan
Feb
Mar
Apr
May Jun Jul
2018/19
2017/18
5‐Year Avg
U.S. Export Commitment to Chinamillion bales
U.S. export commitment to China‐125k bales (‐17%) Crop‐year‐to‐date
U.S.‐China Tariff Situation
‐0.2
‐0.1
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8 change in million bales year‐over‐year (Jul‐Dec)Chinese Cotton Imports Jul‐Dec
Source: USDA & CN Customs
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Aug
Sep
Oct
Nov Dec
Jan
Feb
Mar
Apr
May Jun Jul
2018/19
2017/18
5‐Year Avg
U.S. Export Commitment to Chinamillion bales
+0.8+80%
+0.5+200%
+0.4+305%
+0.4+145%
Australia Brazil India Other(mostlyAfrica)
U.S.Uzbek
‐0.1‐70% ‐0.1
‐20%
U.S. export commitment to China‐125k bales (‐17%) Crop‐year‐to‐date
Chinese fiber imports from all locations+1.7 million bales (+73%) year‐over‐year July‐December
‐0.2
‐0.1
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
U.S.‐China Tariff Situation
‐0.2
‐0.1
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8 change in million bales year‐over‐year (Jul‐Dec)Chinese Cotton Imports Jul‐Dec
Source: CN Customs
Chinese Cotton Yarn Importsmillion bales
Chinese fiber imports from all locations+1.7 million bales (+73%) year‐over‐year July‐December
+0.8+80%
+0.5+200%
+0.4+305%
+0.4+145%
Australia Brazil India Other(mostlyAfrica)
U.S.Uzbek
‐0.1‐70% ‐0.1
‐20%
Chinese yarn imports from all locations+130k bales (+4%) year‐over‐year July‐December
India Uzbek Vietnam
Pakistan U.S.
+0.3+30%
+0.1+60%
+2%
‐0.2‐20%
‐0.1‐7%
‐0.1‐75%
Other
‐0.2
‐0.1
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
U.S.‐China Tariff Situation
0%
10%
20%
30%
40%
50%
60%
Aug‐14 Aug‐15 Aug‐16 Aug‐17 Aug‐18
All Fibers
Cotton‐Dominant
Chinese share of U.S. apparel imports (SA)U.S. Apparel Imports from China
Source: CN Customs and OTEXA
Chinese Cotton Yarn Importsmillion bales
+0.8+80%
+0.5+200%
Chinese yarn imports from all locations+130k bales (+4%) year‐over‐year July‐December
India Uzbek Vietnam
Pakistan U.S.
+0.3+30%
+0.1+60%
+2%
‐0.2‐20%
‐0.1‐7%
‐0.1‐75%
Other
Meeting China’s Coming Import DemandIf China does not get the ten million additional bales of imports from the U.S., where could it come from??Difficult to see how China can get to ~15 million bales of imports without it somehow involving more U.S. exports – U.S. can still ship direct to ChinaCertain categories of imports not subject to additional tariff
– U.S. may need to fill in gaps left by other exporters who ship more to China
– U.S. fiber‐to‐yarn, yarn‐to‐China trade flow should be supported
Source: USDA
Time of Transition
Cotton supply & demand
Macroeconomy
Trade ecosystem
Demand back above trend
Strong sustainability story
41
SustainabilityInfluences
Many consumers have grown more concerned about sustainability.
Source: CCI & Cotton Incorporated’s Global Environment Survey
82% 69% 64% 63%
62% 47% 42%
INDIA MEXICO CHINA ITALY
GERMANY U.S. U.K.
Consumers who say “Sustainability influences my clothing purchase decisions”:
Consumers Look to Cotton Cotton is often how consumers identify a clothing product as sustainable
Percent saying the following factors are safe for the environment:
Polyester
48%
I look to fiber to determine the sustainability of clothing items.
93%
Nylon
50%
Rayon
42%
91% Cotton
Source: CCI & Cotton Incorporated’s Global Environment Research
Microplastic pollution widespread
Source: Adventurers and Scientists for Conservation Microplastic Study
Microplastic Problem
Synthetic Fibers & Plastics
Increasing Concerns
Cotton is Natural
North Carolina State University research on microfiber degradation
Aquatic Biodegradation – Results0
10
20
30
40
50
60
70
80
90
% BIODE
GRA
DATION
0
Cotton GoneCotton Gone76%76% Cotton Gone76%
Polyester GonePolyester Gone4%4% Polyester Gone4%
DAYS25020015010050
Cotton is Natural
2018
2144
COTTON
POLYESTER
Source: Extrapolation from NCSU fiber degradation study
Extrapolation indicates it takes 126 years for polyester microfibers to fully degrade
That is roughly four generations
Implies today’s polyester microfiberswill be around until today’s babies’ great‐great grandchildren are born
Microplastic Research
Viscose – Chemicals & Deforestation
FIBER LABEL CHECKING INCREASES IN THE U.S.
Source: Cotton Incorporated’s Lifestyle Monitor™ Survey
PERCENT ALWAYS/USUALLY CHECK FIBER CONTENT LABELS
56% of Boomers check fiber labels
96 01 06 11 16 1795 00 05 10 15 18
46% of Gen Xers check fiber labels
96 01 06 11 16 1795 00 05 10 15 18
38% of Millennials check fiber labels
1700 05 10 15 18
*Partial year data, through June 2018
Global Demand OutlookCotton IncorporatedFebruary 2019