What are the implications of the big drop in Vietnam's cotton imports?

According to statistics, in February 2023, Vietnam imported 77,000 tons of cotton (lower than the average import volume in the past five years), down 35.4% year on year, among which the foreign direct investment textile imports accounted for 74% of the total import volume of the month (the cumulative import volume of 796,000 tons in 2022/23, down 12.0% year on year).

After a 45.2% year-on-year decrease and a 30.5% month-on-month decrease in cotton imports in January 2023, Vietnam's cotton imports fell sharply again year-on-year, and the decline was significantly larger than in the first few months of this year. Among them, the import volume of American cotton, Brazilian cotton, African cotton, Australian cotton, etc. occupies the forefront. In recent years, the export volume of Indian cotton to Vietnam market has declined significantly, showing signs of gradual withdrawal.

Why have Vietnam's cotton imports plunged in recent months from a year earlier? The author's judgment is directly related to the following factors:

First, influenced by the escalation of the ban on cotton import from Xinjiang successively by China, the EU and other countries, the export of Vietnamese textile clothing, which is highly related to Chinese cotton yarn, grey cloth, fabrics and garments, has also been greatly suppressed, and the consumption demand for cotton has fallen.

Second, influenced by the interest rate hike of the Federal Reserve and the European Central Bank and high inflation, the consumption of cotton textiles and clothing in Europe and the United States and other developed countries fell in shock. For example, in January 2023, Vietnam's total export of textiles and clothing to the United States was $991 million (accounting for the main share (about 44.04%), while its export to Japan and South Korea were $248 million and $244 million respectively, both of which showed a significant decline compared with the same period in 202.

Third, since the fourth quarter of 2022, the cotton textile and garment industry in Bangladesh, India, Pakistan, Indonesia and other countries has bottomed out and rebounded, and the competition with Vietnam textile and garment enterprises is becoming more and more fierce, and the phenomenon of order loss is frequent.

Fourth, against the backdrop of the depreciation of most countries' currencies against the US dollar, the central Bank of Vietnam went against the global trend. On October 17, 2022, it expanded the daily trading range of the US dollar/Vietnamese dong from 3% above or below the central price to 5%, which is not conducive to the export of Vietnamese cotton textiles and clothing. While the dong has fallen about 6.4% against the dollar in 2022, it remains one of the smallest declines among Asian currencies.

According to statistics, in January 2023, Vietnam's textile and clothing exports were 2.225 billion dollars, down 37.6% year on year; Yarn exports were $225 million, down 52.4 percent year on year. Thus, in January and February 2022, the sharp drop in Vietnam's cotton import volume did not exceed expectations, but a normal reflection of enterprise demand and market situation.