Situation and Outlook
Korea’s total cotton imports for marketing year (MY) 2006/07 are forecast at 285,638 metric tons (mt), a 13,601-mt increase from MY 2005/06. The positive import sediment can be attributed to 118,000 new spindles expected to come on-line in January 2007 providing a boost to Korea’s declining cotton processing infrastructure. The U.S. share of the MY 2006/07 Korean cotton import market is expected to fluctuate between 40 percent and 46 percent owing to relative price competitiveness and consistent quality. In CY 2006, cotton yarn imports are expected to increase to 191,000 mt to supplement reduced domestic cotton yarn production. With increasing apparel consumption the overall Korean domestic textile market will see slight gains.
In calendar year (CY) 2006, Korea’s textile exports are expected to decrease in response to high oil prices, and the appreciation of the Korean won against the U.S. dollar while Chinese textile exports continue to challenge Korean exports globally. Safeguard measures introduced by the United States to stem the surge of Chinese textile imports following the abolition of the Multi Fiber Agreement in January 2005 will temper the pace of decline of Korean textile exports to the U.S. market.
Korea does not produce raw cotton and depends on imports to meet demand.
Korean raw cotton consumption in MY 2006/07 is expected to total 279,936 mt in line with recovering apparel consumption and the addition of two new cotton-processing facilities. The introduction of two new facilities with 118,000 new spindles in January 2007 follows on the heels of the destruction of a local cotton-processing facility by fire on September 24, 2005. The fire destroyed 23,000 mt of raw cotton processing capacity and coupled with the appreciating won, are expected to cause a decrease in consumption to 275,911 mt for MY 2005/06.
The Spinners and Weavers Association of Korea (SWAK), which is comprised of 21 companies, consumes roughly 88 percent of all raw cotton imports. Korea’s spinning and textile industry is in a process of long-term decline although the rate of contraction has stabilized since 2002.
The number of spindles owned by SWAK stood at 1.28 million in December 2005 down from 1.59 million reported in December 2004 while the number looms owned by SWAK decreased from 1,224 to 841 over the same period. Korea’s export-oriented textile industry continues to lose competitiveness because of high labor costs and increasing competition from other Asian countries.
Trade
Korea’s raw cotton imports are expected to recover in MY 2006/07 to 285,638 mt, a 13,601-mt increase over the previous year in anticipation of the two new cotton-processing facilities. Despite the appreciation of the Korean won against the U.S. dollar the relative high import price of U.S. raw cotton may push some Korean cotton spinners to use Australian and Brazilian raw cotton. Average import prices have fluctuated between 56 and 59 cents per pound while U.S. raw cotton prices stood at 61 cents per pound in February 2006.
The U.S. share of the imported cotton market is expected to fluctuate between 40 percent and 46 percent for the foreseeable future buttressed by U.S. cotton’s low foreign matter, long stable, consistent quality, and reliable delivery
Australian cotton, perceived as a high quality alternative to U.S. cotton by Korean cotton mills is expected to increase its market share to 27 percent in MY 2005/06 in line with the increased exportable supply.
In MY 2004/05, Brazil became Korea’s third largest raw cotton supplier following the United States and Australia, while raw cotton imports from Uzbekistan are losing market share because of poor price competitiveness and inconsistent quality. Raw cotton imports from Brazil in MY 2005/06 are forecast at 30,000 mt up from 10,356 mt in MY 2003/04 solidifying it as one of Korea’s key raw cotton suppliers with price competitiveness and reasonable quality.
Korean importers of raw cotton value both quality and price and therefore mainly use raw cotton from the United States, Australia and Brazil with these countries accounting for 78.3 percent of raw cotton imports in MY 2004/05.
Korea’s cotton yarn imports are forecast at 191,000 mt in CY 2006 up slightly from CY 2005’s 186,933 mt largely attributed to the reduced domestic capacity as a result of the factory fire. In CY 2005, India, Pakistan and China accounted for 85.4 percent of cotton yarn imports in Korea.
Increased cotton yarn imports in 2005 were mainly consumed by the knit apparel-manufacturing sector for exporting. Imported cotton yarn in 2005 accounted for about 43 percent of total cotton yarn consumption in Korea. On the other hand, cotton yarn exports are expected to decrease in 2006 due to reduced yarn production and strong Korean won exchange rate against the U.S. dollar.
In CY 2005, domestic cotton fabric production decreased 23.4 percent to 47,783 mt from the previous year continuing a trend that has seen overall domestic cotton fabric production shrink 55.5 percent since 2000. The Korean offshore production capacity is fairing no better with a reported decreased capacity from 1,054,386 spindles and 3,270 looms to 664,710 spindles and 2,763 looms respectively. The drop in capacity reflected Korea’s shedding of offshore facilities in Uzbekistan and China.
Under USDA’s GSM Export Credit Guarantee program for FY 2006, US$ 19.4 million of U.S. cotton sales were registered as of March 3, 2006. Six SWAK members have registered sales under the program.
In 2006, the Ministry of Finance and Economy maintained the 50,000-mt quota for imported cotton yarn but raised the in-quota tariff rate to 4 percent from 2 percent. The tariff increase will impact knit apparel exporters who mainly use imported cotton yarn.
Successful completion of a free trade agreement (FTA) between the United States and Korea will increase textile exports to the United States by US$ 190 million annually according to the Korean International Trade Association. The Korea – U.S. FTA will help Korea offset gains made by Chinese and Indian textile exporters in the U.S. market especially since the elimination of the Multi Fiber Agreement in January 2005.
To enhance economic cooperation between the two Koreas, South Korea established a joint-Korean Kaesung Industrial Complex in 2005 with 15 South Korean companies including one sewing factory signing on to the project. Approximately 40 South Korean textile and sewing companies are expected to realize substantial reduction in labor costs and enhanced price competitiveness when they join the complex in early 2007. The Korean government and textile sector want the U.S. to confer South Korean origin on products made at the Kasesung complex so the products may benefit from any FTA tariff reductions.
The Cotton Council International (CCI) and Cotton Incorporated are very active in the Korean market. Cotton Inc. provides technical support to Korean textile mills and encourages them to use U.S. cotton. CCI promotes the use of U.S. cotton through the Cotton USA mark, which it markets through numerous events and media campaigns. As a result, awareness that Cotton USA mark is linked to quality, which encourages Korean cotton textile producers to use U.S. cotton.