Required Report - public distribution

**Date:** 5/14/2004

**GAIN Report Number:** TH4054

TH4054

**Thailand**

**Cotton and Products**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Rodrick McSherry, Agricultural Counselor

U.S. Embassy, Bangkok

**Prepared by:**

Ponnarong Prasertsri, Agricultural Specialist

**Report Highlights:**

MY 2004/05 raw cotton import demand will likely recover from the
previous year\'s contraction, following anticipated favorable domestic
and export demand for high quality Thai textile products, as intense
competition increases in the U.S. market among low-cost textile
producers.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Unscheduled Report

Bangkok \[TH1\]

\[TH\]

#  

[Executive Summary 3](#executive-summary)

[Section 1: Situation and Outlook 4](#section-1-situation-and-outlook)

[1. Upland Cotton 4](#upland-cotton)

[1.1 Production 4](#production)

[1.2 Consumption 4](#consumption)

[1.3 Trade 5](#trade)

[1.4 Policy/Marketing 5](#policymarketing)

[2. Value-added Cotton 5](#value-added-cotton)

[2.1 Cotton Yarn 6](#cotton-yarn)

[2.1.1 Production 6](#production-1)

[2.1.2 Consumption 6](#consumption-1)

[2.1.3 Trade 6](#trade-1)

[2.2 Cotton Fabrics 7](#cotton-fabrics)

[2.2.1 Production 7](#production-2)

[2.2.2 Consumption 7](#consumption-2)

[2.2.3 Trade 7](#trade-2)

[Section 2: Statistical Tables 8](#section-2-statistical-tables)

[Table 1: Thailand Production, Supply and Demand for Raw Cotton
8](#table-1-thailand-production-supply-and-demand-for-raw-cotton)

[Table 2: Farm Gate Prices for Seed Cotton
9](#table-2-farm-gate-prices-for-seed-cotton)

[Table 3: Thailand's Raw Cotton Imports
10](#table-3-thailands-raw-cotton-imports)

[Table 4: Thailand's Key Economic Indicators
11](#table-4-thailands-key-economic-indicators)

[Table 5: Status of Textile Industry in Thailand
12](#table-5-status-of-textile-industry-in-thailand)

[Table 6: Thailand's Production and Consumption of Yarn
13](#table-6-thailands-production-and-consumption-of-yarn)

[Table 7: Thailand's Exports of Cotton Yarn
13](#table-7-thailands-exports-of-cotton-yarn)

[Table 8: Thailand's Imports of Cotton Yarn
14](#table-8-thailands-imports-of-cotton-yarn)

[Table 9: Thailand's Production and Consumption of Fabrics
14](#table-9-thailands-production-and-consumption-of-fabrics)

[Table 10: Thailand's Exports of Cotton Fabrics
15](#table-10-thailands-exports-of-cotton-fabrics)

[Table 11: Thailand's Imports of Cotton Fabrics
15](#table-11-thailands-imports-of-cotton-fabrics)

[Table 12: Tariffs for Cotton and Textile Products
16](#table-12-tariffs-for-cotton-and-textile-products)

#  

# Executive Summary

MY 2004/05 cotton production will likely increase slightly due mainly to
an improvement in yield, as planted area is expected to continue to
decline in response to the shift towards more profitable crops, in
particular corn. MY 2004/05 cotton consumption is forecast to continue
its upward trend in line with sustained economic growth and continued
favorable export demand for Thai textile products, particularly in the
European countries. Also, the exports of high-end products to the U.S.,
which is the largest importer of Thai textile products, will likely be
firm, despite anticipated intense competition from low-cost textile
suppliers due to the global textile trade liberalization among WTO
member countries by the beginning of 2005. With limited domestic
supplies of raw cotton, Thailand still relies heavily on imports, which
are forecast to continue on an upward trend, in line with the growing
domestic and external textile demand.

# Section 1: Situation and Outlook

## 1. Upland Cotton

### 1.1 Production

MY 2004/05 cotton production will likely increase slightly to 13,500
metric tons in response to anticipated improvements in average yield, as
prices remain attractive. However, planted area is forecast to continue
to decline, as farmers are expected to shift their land to other
competing crops, in particular corn due to its current favorable prices.
The critical price for the cultivation of cotton is reported at 12
baht/kg (roughly US 13 cents/pound).

MY 2003/04 cotton production has been revised downward to 13,200 metric
tons, down slightly from the previous year, due to a aphid infestation
in the crop. The Office of Agricultural Economics estimate of the MY
2003/04 cotton production cost increased slightly to US\$ 478/hectare,
mainly in line with an increase in labor cost, which accounts for about
half of total production cost. The average cost of harvested seed cotton
before ginning was 16.7 baht/kg. (roughly US 18 cents/pound), up
slightly from the previous year, in response to a drop in average
yields.

### 1.2 Consumption

MY 2004/05 raw cotton consumption is forecast to grow further to 451,500
metric tons in response to anticipated favorable domestic and export
demand for cotton-related products, in particular cotton yarn, cotton
fabric and other cotton-content textile products. Domestic demand for
cotton-related products, which is reported to account for about 60
percent of total cotton-related production, is expected to continue its
upward growth trend, following the sustained economic growth in
Thailand. Also, external demand will likely be firm, as Thai textile
products are reportedly expected to maintain their competitiveness with
low-cost products from major competitors like China in some markets.
Thai textiles are expected to do well in the European market which is
the second largest market for Thai textile products, covering about 30
percent of total Thai textile exports, due to the advantage provided by
the EU's GSP for Thai garments since 2003. As for the U.S. market, which
accounts for about half of the total exports of Thai textile products,
the export potential will be challenged by fierce competition from
low-cost suppliers, in particular China and India, after the removal of
textile quotas among WTO-member countries at the beginning of 2005. The
market opportunity for Thai textile products is reported to be in niche
markets for which most existing Thai garment factories are reportedly
well prepared. However, the concerns among Thai officials are the
re-exports of Chinese-origin products through Thailand, as China's
textile exports to the U.S. are still restricted by quota for an
additional 3-4 years.

In MY 2003/04 raw cotton consumption is estimated at 435,000 metric
tons, up slightly from the previous year. The increase mainly reflects
strong Thai garment exports to the European market, following more
competitive prices that resulted from the renewal of the EU's GSP for
Thailand, which resulted in a 20 percent tariff reduction from the
normal tariff rate. Also, exports of cotton yarn and fabrics are
estimated to increase significantly, following the recovery in the
Chinese textile business in the first half of MY 2003/04 from the
outbreak of Severe Acute Respiratory Syndrome (SARS) in the second half
of MY 2002/03. In addition, the domestic demand for textile products
also reportedly recovered. The Department of Industrial Promotion
estimate for number of spindles continued to increase in CY 2003.

The structure of cotton demand in Thailand in CY 2003 remains unchanged
from the previous year. Total cotton utilization is classified into: 1)
medium-count-yarn staple cotton with staple lengths of 1 3/32" to 1
1/8", accounting for about 65 percent of total cotton utilization;\
2) coarse-count-yarn staple cotton accounting for around 30 percent; and
3) fine-count-yarn staple cotton and extra long staple cotton together
accounting for 5 percent.

### 1.3 Trade

Thailand relies heavily on imported cotton due to small domestic
supplies. MY 2004/05 raw cotton imports are estimated to continue to
increase slightly to 410,000 metric tons, in anticipation of volatile
global cotton prices. Most spinners are reportedly cautious to be able
to cover their import demand two years out. Trade sources reported that
imports of U.S. cotton still dominate the market. In MY 2003/04 raw
cotton imports is forecasted at 395,000 metric tons, down slightly for
the second consecutive year, in response to the surge in global cotton
prices which mainly resulted from strong import demand from China that
accounted for about 30 percent of global import demand. Trade sources
reported that some large-scale spinners ran down their stocks which had
accumulated in MY 2002/03.

According to trade sources, the C&F price quotation for SJV growth
cotton (SM1 1/8"), which is the most popular U.S. cotton imported into
Thailand, are currently at about 70-80 US cents/pound, up further from
the previous year's level of 57 US cents/pound. However, the similar
quality Australian Andy cotton is not quoted due to tight supply
situation. Meanwhile, m/o/t growth cotton is now quoted at 68 US
cents/pound for West African cotton.

As for Thai cotton exports, MY 2004/05 cotton exports will likely
continue to decline due to the smaller domestic crop.

### 1.4 Policy/Marketing

The Thai government has not subsidized cotton prices or production.
Also, import duties for raw cotton have been zero for several years.

The USDA's GSM-102 Export credit Guarantee Program in Thailand, which
covers cotton and cotton products, remains inactive as domestic interest
rates are still lower than the lending rates obtained from the GSM
program.

## 2. Value-added Cotton

CY 2003 export earnings from the textile industry continued to grow by
6.4 percent to US\$ 5.5 million, accounting for about 6.8 percent of
total export earnings. Textile factories totaled approximately 4,500
factories, of which approximately 58 percent are clothing mills,
followed by weaving (15 percent), spinning (3 percent), knitting (15
percent), and the balance is in man-made fiber, and dyeing and printing
mills. About three-quarters of textile workers are in the clothing
industry, with the balance working in the spinning, weaving, knitting,
and dyeing and printing operations.

In CY 2003 the number of spinning mills increased slightly to 150 mills,
operating about 3.7 million spindles. Products from the mills included
cotton yarn (mostly 100 percent cotton), T/C yarn (blended yarn
containing about 65 percent polyester and 35 percent cotton), and CVC
yarn (cheap value cotton yarn). Spun yarn, both weaving and knitting
yarn, is sold domestically for fabric weaving or knitting, and is also
exported. There are 673 weaving mills and 675 knitting mills
manufacturing cotton fabrics and other fabrics, selling products both
domestically and internationally.

Thailand's textile industry will face intense competition by January
2005 from low-cost textile suppliers from South Asian countries like
India, and from China in the next few years, following the global
textile trade liberalization among WTO-member countries. At the same
time, the Thai textile industry is expected to gain more market share at
the expense of China in the Australian market, due to tariff reductions
reaching zero percent within 10 years, as a result of a new Free Trade
agreement between Thailand and Australia. These reductions will start
with a 50 percent reduction in the tariff rate of 12.5 percent in
January 2005, and this will fall to a 5 percent tariff rate in 2010. The
Thai Garment Manufacturers Association estimates a 100 percent increase
in Thai garment exports to Australia in CY 2005 and a 300 percent
increase in CY 2015, given the current annual export value of Thai
garments to Australia of around US\$ 35 million. Also, the coming FTA
with the U.S. is seen by the trade as bringing a likely 25-35 percent
increase in Thai garment exports to the US, assuming a reduction of
tariff to zero rate, against the current tariff rate of around 20-30
percent. The Thai textile industry holds the hope that the FTA with the
U.S. will alleviate the negative impact of the global textile trade
liberalization for Thai textile manufacturers.

### 2.1 Cotton Yarn

#### 2.1.1 Production

CY 2004 cotton yarn production (excluding T/C and CVC) is forecast to
continue to increase slightly from the previous year, as most spinners
reportedly faced with some difficulties in securing raw cotton due to
the volatility of global cotton prices. Trade sources reported that most
large-scale spinners are running down stocks.

Some Thai spinners are moving towards producing more medium count yarn
cotton (#30's - 40's), in order to maximize the utilization of the
limited supply of raw cotton. Also, export potential is better for this
product than coarse count yarn (#20's and lower), in which the Chinese
competition is reportedly very strong. Moreover, some spinners are
producing high-quality fine cotton yarn in such categories as #80's --
100's. However, this shift is constrained by limited number of skill
workers and thin market demand. As for the T/C yarn, some spinners are
reportedly blending more polyester at 80 percent with cotton at 20
percent, against 65:35 in the past, so as to balance the impact of high
cotton prices.

#### 2.1.2 Consumption

Most cotton yarn is usually used domestically for weaving and knitting.
The CY 2004 domestic demand for cotton yarn is forecast to recover from
the slowdown of the previous year, following the recovery in domestic
consumption and anticipated favorable export demand for garments.

#### 2.1.3 Trade

CY 2004 cotton yarn exports will likely continue the increase begun in
the previous year, in anticipation of the rebound in textile production
of the major importing countries. China is still Thailand's largest
importer of cotton yarn, amounting to 10,440 metric tons, up
significantly from the previous year, mainly in response to the recovery
in the textile industry in the second half of the year.

Cotton yarn imports are forecast to increase further in CY 2004, in
particular the coarse count yarn due to the limited domestic supply. In
CY 2003 cotton yarn imports declined slightly to 10,726 metric tons,
about half of which are imports from China.

###    2.2 Cotton Fabrics

#### 2.2.1 Production

CY 2004 fabric production is forecast to rebound from the previous
year's contraction level, following the recovery in garment production.
Trade sources reported that about 60 percent of cotton fabrics are woven
fabrics. In CY 2003 fabric production declined slightly due to the
slowdown in garment exports and sluggish domestic demand.

#### 2.2.2 Consumption

CY 2004 cotton fabric consumption is estimated to recover in response to
the favorable domestic garment production, following favorable domestic
and export demand for garments. In CY 2003 cotton fabric consumption
declined slightly due mainly to the sluggish domestic and export demand
for garments.

#### 2.2.3 Trade

CY 2004 cotton fabric will likely continue to increase in line with the
favorable economic conditions in the major importing countries. Exports
to the EU are estimated to increase further. Meanwhile, exports to the
U.S. are reportedly facing strong price competition. In CY 2003 cotton
fabric exports increase significantly despite a contraction in the U.S.
market. The increase was mainly result from strong demand among European
countries. Also, cotton fabric exports to China increased significantly.

Thailand's CY 2004 imports of cotton fabric are forecast to continue the
upward trend. Most imported cotton fabric from China, accounting for
about half of total cotton fabric imports is reportedly used for
domestic-oriented garment production. Meanwhile, higher quality imported
cotton fabric from Japan and Hong Kong is mainly used in
exported-oriented garment production.

# Section 2: Statistical Tables

## Table 1: Thailand Production, Supply and Demand for Raw Cotton

+------------------+-------+-------+-------+-------+-------+-------+
| **PSD Table**    |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| **Country**      | **    |       |       |       |       |       |
|                  | Thail |       |       |       |       |       |
|                  | and** |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| **Commodity**    | **Cot |       |       |       | (HEC  |       |
|                  | ton** |       |       |       | TARES |       |
|                  |       |       |       |       | )(MT) |       |
+------------------+-------+-------+-------+-------+-------+-------+
|                  | 2002  |       | 2003  |       | 2004  |       |
|                  |       |       |       |       |       |       |
|                  | Re    |       | Est   |       | For   |       |
|                  | vised |       | imate |       | ecast |       |
+------------------+-------+-------+-------+-------+-------+-------+
|                  | USDA  | Post  | USDA  | Post  | USDA  | Post  |
|                  | Off   | Est   | Off   | Est   | Off   | Est   |
|                  | icial | imate | icial | imate | icial | imate |
|                  | \[    | \[    | \[    | \[    | \[    | \[    |
|                  | Old\] | New\] | Old\] | New\] | Old\] | New\] |
+------------------+-------+-------+-------+-------+-------+-------+
| **Market Year    |       | 08    |       | 08    |       | 08    |
| Begin**          |       | /2002 |       | /2003 |       | /2004 |
+------------------+-------+-------+-------+-------+-------+-------+
| Area Planted     | 0     | 0     | 0     | 0     | 0     | 0     |
+------------------+-------+-------+-------+-------+-------+-------+
| Area Harvested   | 35000 | 11260 | 33000 | 11100 | 0     | 11000 |
+------------------+-------+-------+-------+-------+-------+-------+
| Beginning Stocks | 1     | 1     | 1     | 1     | 94058 | 1     |
|                  | 33031 | 56814 | 29547 | 58482 |       | 22082 |
+------------------+-------+-------+-------+-------+-------+-------+
| Production       | 14152 | 14100 | 14588 | 13200 | 0     | 13500 |
+------------------+-------+-------+-------+-------+-------+-------+
| Imports          | 4     | 4     | 3     | 3     | 0     | 4     |
|                  | 23478 | 27112 | 81021 | 95000 |       | 10000 |
+------------------+-------+-------+-------+-------+-------+-------+
| TOTAL SUPPLY     | 5     | 5     | 5     | 5     | 94058 | 5     |
|                  | 70661 | 98026 | 25156 | 66682 |       | 45582 |
+------------------+-------+-------+-------+-------+-------+-------+
| Exports          | 218   | 3244  | 1089  | 3000  | 0     | 2800  |
+------------------+-------+-------+-------+-------+-------+-------+
| USE Dom.         | 4     | 4     | 4     | 4     | 0     | 4     |
| Consumption      | 35453 | 30000 | 24567 | 35000 |       | 51500 |
+------------------+-------+-------+-------+-------+-------+-------+
| Loss Dom.        | 5443  | 6300  | 5443  | 6600  | 0     | 6950  |
| Consumption      |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| TOTAL Dom.       | 4     | 4     | 4     | 4     | 0     | 4     |
| Consumption      | 40896 | 36300 | 30010 | 41600 |       | 58450 |
+------------------+-------+-------+-------+-------+-------+-------+
| Ending Stocks    | 1     | 1     | 94058 | 1     | 0     | 84332 |
|                  | 29547 | 58482 |       | 22082 |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| TOTAL            | 5     | 5     | 5     | 5     | 0     | 5     |
| DISTRIBUTION     | 70661 | 98026 | 25157 | 66682 |       | 45582 |
+------------------+-------+-------+-------+-------+-------+-------+

## Table 2: Farm Gate Prices for Seed Cotton

  ------------------------- --------------- --------------- ---------------
  **Prices Table**                                          

  **Country**               Thailand                        

  **Commodity**             Cotton                          

  Prices in                 Baht            per uom         Kilogram

                                                            

  Year                      2003            2004            \% Change

  Jan                       20.98           22.5            7%

  Feb                       21.5            n.a.            

  Mar                       0               n.a.            

  Apr                       0               n.a.            

  May                       0               n.a.            

  Jun                       0               n.a.            

  Jul                       0               n.a.            

  Aug                       0               n.a.            

  Sep                       0               n.a.            

  Oct                       0               n.a.            

  Nov                       23.47           n.a.            

  Dec                       22.82           n.a.            

                                                            

  Exchange Rate             40.01           Local           
                                            Currency/US \$  

  Date of Quote             4/30/2004       MM/DD/YYYY      
  ------------------------- --------------- --------------- ---------------

## ![](media/image2.wmf){width="6.25in" height="4.519444444444445in"}Table 3: Thailand's Raw Cotton Imports

Source: Thai Custom Department

## ![](media/image3.wmf){width="7.166666666666667in" height="4.079861111111111in"}Table 4: Thailand's Key Economic Indicators

Source: Bank of Thailand

## ![](media/image4.wmf){width="7.166666666666667in" height="2.8in"}Table 5: Status of Textile Industry in Thailand

Source: Department of Industrial Promotion, Ministry of Industry

## Table 6: Thailand's Production and Consumption of Yarn

![](media/image5.wmf){width="7.083333333333333in"
height="2.470833333333333in"}

Source: Department of Industrial Promotion, Ministry of Commerce

## ![](media/image6.wmf){width="5.166666666666667in" height="3.4444444444444446in"}Table 7: Thailand's Exports of Cotton Yarn

Source: Thai Custom Department

## ![](media/image7.wmf){width="5.25in" height="3.3513888888888888in"}Table 8: Thailand's Imports of Cotton Yarn

Source: Thai Custom Department

## ![](media/image8.wmf){width="7.083333333333333in" height="2.2375in"}Table 9: Thailand's Production and Consumption of Fabrics

Source: Department of Industrial Promotion, Ministry of Industry

## ![](media/image9.wmf){width="5.583333333333333in" height="3.4611111111111112in"}Table 10: Thailand's Exports of Cotton Fabrics

Source: Thai Custom Department

## ![](media/image10.wmf){width="5.083333333333333in" height="2.9583333333333335in"}Table 11: Thailand's Imports of Cotton Fabrics

Source: Thai Custom Department

## ![](media/image11.wmf){width="6.5in" height="2.3604166666666666in"}Table 12: Tariffs for Cotton and Textile Products

Source: Thai Custom Department

End of Report.