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POLICY

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Report Highlights:

Indonesian importers report that anticipated increases in fossil fuel prices will drive down synthetic

fiber demand, pushing up Indonesia’s expected cotton imports in MY 2016/17. Indonesian cotton

production remains nominal at an estimated 5,000 bales. The Indonesian government is contemplating

new programs to incentivize textile manufacturing in Indonesia.

Thom Wright, Sugiarti Meylinah

Ali Abdi

Indonesia Cotton and Products Annual Report 2017

Cotton and Products Annual

Indonesia

ID1706

3/31/2017

Required Report - public distribution

I. Situation and Outlook

Executive Summary

Post estimates that Indonesian cotton imports are expected to reach 3.05 bales in MY 2016/17 and 3.1

bales in MY 2017/18. Increases are expected based on importer’s anticipation of rising fossil fuel prices,

which will drive down demand for synthetic fabrics. Despite expected increases of Indonesian cotton

imports, Indonesian textile and textile product exports are declining as international demand softens.

The Indonesian Textile Association (API, Asosiasi Pertekstilan Indonesia) reported that the value of

Indonesian textiles and product exports to the United States declined 3.7 percent from $3.98 billion (Jan

- Sept 2015) to $3.84 billion (Jan-Sept 2016). Indonesia’s major export destinations for textiles are the

United States (32.1 percent market share), the European Union (14.6 percent), and Japan (9.8 percent).

Indonesian demand for locally made textiles is also declining due to competition from low cost imports

and weakening consumer purchasing power, attributable to the weak rupiah. (The Indonesian rupiah

continues to fluctuate, ranging from Rp. 13,084/$1 on November 9, 2016 to Rp. 13,360/$1 on February

23, 2017).

Production

Indonesian cotton production is very low, as farmers continue to face better incentives to grow alternates

such as rice or corn. The few Indonesian farmers that do grow cotton have limited access to high

yielding varieties and cultivation practices. Increased land conversion to nonagricultural uses also

reduces the area dedicated to cotton. The Directorate General for Estate Crops of the Indonesian

Ministry of Agriculture (DGEC, MOA) reported that in MY 2015/16, most cotton was grown on

marginal lands, mostly in South Sulawesi. Farmers in Central Java no longer grow cotton. Based on the

DGEC report, Post estimates that Indonesian cotton production will remain stagnant at 5,000 bales in

MY 2016/17. MY 2017/18 Indonesia’s cotton production is forecast to decline to 3,000 bales, as Post

expects farmers will continue to convert cotton production to corn and other crops. The volume of

domestic cotton production contributes to less than 0.25 percent of Indonesia’s total cotton demand.

Consumption

MY 2016/17 USDA’s Indonesian cotton consumption estimate is increased to 3.05 million bales from

the previous MY 2015/16 of 3.0 million bales. MY 2017/18 Indonesian cotton consumption is forecast

to reach 3.1 million bales. Increasing cotton consumption is based on industry expectations of increasing

fossil fuel prices, thus driving down synthetic fiber demand. The Government of Indonesia has also

announced its intentions to implement programs which will discourage textile imports as well as provide

producer incentives.

Indonesia’s Ministry of Industry (MOI) reported that the Indonesian fabric subsector ran at 50 percent

capacity in 2015, compared to 58.76 percent in 2014. Additionally, the Indonesia Statistics Agency

(BPS, Badan Pusat Statistik) reported that imports of woven fabrics, knitted fabrics, twine, and synthetic

fibers during the period of January to August 2016 increased by 34.39 percent, 2.99 percent, 11.81

percent, and 13.62 percent respectively, compared to the same period of 2015. In response to falling

fabric production and growing fabric imports, the GOI is considering measures to restrict imports of

yarn and fabrics into Indonesia by limiting imports to “producer-importers,” with the stipulation that

producer-importers may only use imported yarn and fabrics for further production. MOI will also

require pre-shipment inspections in the loading country, impose an anti-dumping duty, and enforce the

Indonesian National Standard (SNI) on imported yarn and fabrics. Additionally, in order to improve

Indonesian textile and textile products competitiveness, MOI will provide a flat electricity tariff to

textile manufacturers during the peak hours of 11:00 PM to 8:00 AM and expand textile manufacturer’s

operational hours from 40 hours per week to 48 hours per week. MOI has targeted implementation of

these regulation changes for 2017.

Indonesia’s textile industry, as of 2015, can be broken down as follows: cotton fiber production (0.58

percent), spinning (5.37 percent), weaving and knitting (27.58 percent), garments (52.77 percent), and

other textiles (13.71 percent). Industry sources report that Indonesian spun yarn and sewing thread

spinners consumed a total of 1.842 million metric tons of fiber as raw material in 2016. This consists of

cotton (34.9 percent), man-made fiber (65.1 percent), and others (0.1 %). In CY2015 Indonesia

exported approximately 45 percent of its yarn production. The spinning sector is slowly expanding,

having grown from 286 companies in CY 2014 to 288 companies in CY 2015. In CY 2016, Indonesian

spinning mills ran at 79 percent capacity, with a total of 12.10 million spindles, an increase from total

installed capacity of 11.92 million spindles and 65.38 percent running capacity in 2015.

Trade

Falling international demand has reduced Indonesian textile exports. The Indonesian Textile Association

(API, Asosiasi Pertekstilan Indonesia) reported that Indonesian textile and clothing exports to the United

States, European Union, and Japan declined by 3.7 percent, 2.2 percent, and 10.2 percent, respectively,

during the period of January to September 2016 compared to the same period of 2015. Mills have thus

faced an over-supply of finished fabrics since the middle of 2015.

Despite low demand for Indonesian textile and textile products, some Indonesian mills are switching

from synthetic fibers to cotton as crude oil prices increase. Growing cotton production in exporting

countries may offset the trend of increasing cotton prices supporting increasing cotton consumption.

Given the anticipated switch from synthetics to cotton, post expects MY 2016/17 cotton imports to reach

3.05 million bales, up from the previous MY 2015/16 of 2.941 million bales. MY 2017/18 Indonesian

cotton imports are forecast to slightly increase to 3.1 million bales due to the same reason.

Brazil has overtaken the US as lead supplier to Indonesia during the second half of 2016. Importers note

that Brazil edged the US out due to its shorter lead times and more consistent product. Brazil’s market

share in the second half of 2016 was 32.03 percent, compared to the United States (31.01), Australia

(16.24), and Argentina (5.06). Indonesia’s primary yarn export destinations in CY 2016 were China (70

percent), Japan (14 percent), and South Korea (7 percent).

Stocks

Indonesian spinners rely heavily on imported cotton. Operational practices require cotton spinners to

maintain two months of stocks on hand plus one month of on the way stocks in order to maintain

uninterrupted production. (This contrasts with manmade fiber spinners who typically hold two weeks of

stocks on hand plus one week of on the way stocks). Spinners report an advantage from importing cotton

from suppliers with shorter shipping times. As a result, compared with South American, Australian and

African shipping times, US exports to Indonesia remain at a disadvantage.

Rising storage costs prevent Indonesian spinners from maintaining large inventories. As a result,

spinners prefer to source raw materials on an as-needed basis. Therefore, Post estimates MY 2016/17

Indonesian ending stocks to remain on par with that of the previous MY2015/16 of 528,000 bales.

Stock is forecast to slightly decline to 526,000 bales in MY2017/18 in line with expectation of further

increase of cotton consumption.

Marketing

Large and export-oriented manufacturers with stronger cash flows are expanding their capacity through

the procurement and installment of new machinery. Unlike smaller mills using 20 year old technology,

these larger mills are using newer and more efficient cotton spinning technology.

Indonesian importers have access to commercial credit for the financing of imports. In the past, GSM

102 was competitive compared to local creditors. However, under current terms, importers have little

interest in the program.

II. Statistical Tables

TABLE 1. PSD COTTON (HS CODE 5201) IN BALES

Cotton 2015/2016 2016/2017 2017/2018 Market Begin Year Aug 2015 Aug 2016 Aug 2017

Indonesia USDA Official New Post USDA Official New Post USDA Official New Post

Area Planted 0 5 0 5 0 3

Area Harvested 3 3 3 3 0 2

Beginning Stocks 597 597 528 528 0 528

Production 5 5 5 5 0 3

Imports 2941 2941 3100 3050 0 3100

MY Imports from U.S. 0 688 0 730 0 740

Total Supply 3543 3543 3633 3583 0 3631

Exports 15 15 5 5 0 5

Use 3000 3000 3050 3050 0 3100

Loss 0 0 0 0 0 0

Total Dom. Cons. 3000 3000 3050 3050 0 3100

Ending Stocks 528 528 578 528 0 526

Total Distribution 3543 3543 3633 3583 0 3631

(1000 HA) ,1000 480 lb. Bales

Note: last column of each marketing year is not official USDA data.

TABLE 2. PSD COTTON (HS CODE 5201) IN MT

Cotton 2015/2016 2016/2017 2017/2018

Market Begin Year Aug 2015 Aug 2016 Aug 2017

Indonesia USDA Official New Post USDA Official New Post USDA Official New Post

Area Planted 0 0 0 0 0 0

Area Harvested 3 0 3 0 0 0

Beginning Stocks 129983 129983 114960 114960 0 114960

Production 1089 1089 1089 1089 0 653

Imports 640333 640333 674952 664066 0 674952

MY Imports from U.S. 0 149796 0 158940 0 161118

Total Supply 771405 771405 791000 780114 0 790565

Exports 3266 3266 1089 1089 0 1089

Use 653179 653179 664066 664066 0 674952

Loss 0 0 0 0 0 0

Total Dom. Cons. 653179 653179 664066 664066 0 674952

Ending Stocks 114960 114960 125846 114960 0 114524

Total Distribution 771405 771405 791000 780114 0 790565

Note: Last column of each Marketing Year is not official USDA data.

TRADE MATRIXES

TABLE 3. COTTON IMPORT TRADE MATRIX (MY 2014 - 2016)

Country Indonesia

Commodity Cotton

Time Period Aug - Jul Units: 1,000 MT Units: 1,000 MT

Imports for: 2013/14 Imports for: 2014/15 Imports for: 2015/16

U.S. 152 U.S. 213 U.S. 151

Others

Others

Others

Brazil 115 Brazil 186 Brazil 142

Australia 79 Australia 54 Australia 60

India 56 Burkina Faso 34 India 52

Cote d'Ivoire 34 Greece 31 Benin 23

Mali 25 Cote d'Ivoire 29 Cote d'Ivoire 20

Burkina Faso 21 Pakistan 29 Burkina Faso 20

Greece 16 Argentina 26 Greece 19

Tanzania 16 Mali 26 Mali 17

Pakistan 15 India 22 Pakistan 13

Mozambique 13 Benin 18 Malaysia 12

Argentina 12 Cameroon 11 Zambia 12

Malaysia 7 South Africa 9 Argentina 11

Spain 6 Spain 7 Zimbabwe 9

South Africa 6 Togo 7 Togo 8

Uganda 4 Mexico 3 Mexico 7

Paraguay 1 Malaysia 3 Spain 5

Senegal 1 China 2 Mexico 4

Total for Others 427 Total for Others 497 Total for Others 434

Others not Listed 80 Others not Listed 18 Others not Listed 40

Grand Total 659 Grand Total 728 Grand Total 625 Source: Global Trade Atlas.

TABLE 4. COTTON EXPORT TRADE MATRIX (MY 2014 – 2016)

Export Trade Matrix

Country Indonesia

Cotton, HS Code 5201

Commodity

Time Period Aug-Jul Units: Units: MT

Exports for: 2013/14

2014/15

2015/16*

U.S. 0 U.S. 0 U.S. 0

Others

Others

Others

Vietnam 173 Vietnam 747 Vietnam 1242

Sri Lanka 148 Sri Lanka 349 Sri Lanka 498

Taiwan 132 Malaysia 144 Malaysia 394

China 77 Taiwan 299

India 53 India 263

Taiwan 32 China 98

Saudi Arabia 21 Hong Kong 40

Japan 18 Japan 35

Total for Others 453

1441

2869

Others not Listed 0

13

21

Grand Total 453

1454

2890

Note: for 2015/16 only for the period of Aug 2015 to May 2016 Source: Global Trade Atlas.

TABLE 5. COTTON YARN IMPORT TRADE MATRIX (CY 2014 – 2016)

Country Indonesia

Commodity Yarn

Time Period Jan-Dec Units: 1,000 MT Units: 1,000 MT

Exports for: 2014

2015

2016

U.S. 0 U.S. 0 U.S. 0

Others

Others

Others

India 9 India 10 India 9

South Korea 4 China 2 China 3

China 3 South Korea 1 Hong Kong 1

Hong Kong 1 Hong Kong 1 Costa Rica 1

Total for Others 17 Total for Others 14 Total for Others 14

Others not Listed 1 Others not Listed 1 Others not Listed 2

Grand Total 18 Grand Total 15 Grand Total 16 Source: Global Trade Atlas.

TABLE 6. COTTON YARN EXPORT TRADE MATRIX (CY 2014 – 2016)

Country Indonesia

Commodity Yarn

Time Period Jan-Dec Units: 1,000 MT Units: 1,000 MT

Exports for: 2014

2015

2016

U.S. 1

2

1

Others

Others

Others

China 93 China 104 China 106

Japan 21 Japan 19 Japan 21

South Korea 7 South Korea 9 South Korea 10

Hong Kong 6 Hong Kong 5 Hong Kong 5

Malaysia 2 Bangladesh 4

Germany 1 South Africa 1

Guatemala 1 Vietnam 1

Turkey 1

Total for Others 132 Total for Others 143 Total for Others 142

Others not Listed 4 Others not Listed 10 Others not Listed 7

Grand Total 137 Grand Total 155 Grand Total 150 Source: Global Trade Atlas.

TABLE 7. COTTON FABRIC IMPORT TRADE MATRIX (CY 2014 - 2016)

Country Indonesia

Commodity Fabric

Units: 1,000 MT Units: Units:

Time Period Jan-Dec Time Period Jan - Dec Time Period Jan - Dec

Exports for: 2014 Exports for: 2015 Exports for: 2016

U.S. 2 U.S. 0 U.S. 0

Others

Others

Others

China 229 China 191 China 35

Korea, Rep. of 78 Korea, Rep. of 56 Korea, Rep. of 12

Hong Kong 61 Hong Kong 53 Hong Kong 9

Pakistan 12 Pakistan 9 Pakistan 2

Malaysia 10 Taiwan 9 Taiwan 2

Vietnam 9 India 9 India 2

Japan 8 Vietnam 5

Taiwan 8 Japan 2

India 7 Turkey 2

Italy 2 Thailand 2

Macau 2 Malaysia 1

Turkey 2

Thailand 1

Belgium 1

Total for Others 430 Total for Others 339 Total for Others 62

Others not Listed 5 Others not Listed 3 Others not Listed 2

Grand Total 437 Grand Total 342 Grand Total 64 Source: Global Trade Atlas.

TABLE 8. COTTON FABRIC EXPORT TRADE MATRIX (CY 2014 - 2016)

Country

Indonesi

a

Commodity Fabric

Units:

1,000

MT

Time Period Jan-Dec

Jan-

Dec

Jan-

Dec

2014

2015

2016

U.S. 13 U.S. 14 U.S. 2

Others

Others

Others

Japan 56 Japan 36 Japan 8

Belgium 16 Belgium 17 Belgium 3

Italy 13 Italy 6 Italy 1

Korea Rep. of 10 Netherlands 6 Portugal 1

Germany, Fed. Rep. 10 Germany, Fed. Rep. 5 Netherlands 1

Turkey 8 Israel 5 China 1

Netherlands 7 China 5 Spain 1

Cambodia 7 Turkey 4 Vietnam 1

Vietnam 7 Cambodia 4

Bangladesh 6 Vietnam 4

Israel 4 Bangladesh 4

China 3 Portugal 4

Portugal 3 Korea Rep. of 3

Brazil 3 Thailand 3

Thailand 2

United Arab

Emirates 2

United Arab

Emirates 2 Malaysia 2

Malaysia 2 Spain 2

Spain 2 Brazil 1

Canada 2 Canada 1

Singapore 2 Singapore 1

Hong Kong 1 Hong Kong 1

Philippines 1 Philippines 1

Total for Others 167 Total for Others 117 Total for Others 17

Others not Listed 8 Others not Listed 7

Others not

Listed 3

Grand Total 188 Grand Total 138 Grand Total 22 Source: Global Trade Atlas.

TABLE 9. TEXTILE AND TEXTILE PRODUCT EXPORTS IN 2014 - 2015

Value is in $1,000 and volume is in MT

Products 2014 2015

Value Volume Value Volume

Manmade Fibers 570,187 419,692 527,014 433,846

Yarns 2,496,654 936,826 2,336,530 1,000,693

Fabrics 1,813,815 349,633 1,673,596 304,626

Garments 7,359,754 462,100 7,283,376 452,389

Other Textile Products 500,402 110,519 462,464 103,949

TOTAL 12,740,812 2,278,770 12,282,980 2,295,503

Source: Investment Coordinating Agency, Statistics Agency, and Min. Of Industry

TABLE 10. TEXTILE AND TEXTILE PRODUCT IMPORTS IN 2014 - 2015

Value is $ 1,000 and Volume is in 1,000 kg

Products 2014 2015

Value Volume Value Volume

Manmade Fibers 2,326,024 1,054,242 1,883,810 994,969

Yarns 715,844 235,826 639,187 228,940

Fabrics 4,601,489 628,962 4,608,368 634,605

Garments 444,430 61,062 401,520 43,913

Other Textile Products 478,201 88,417 443,066 78,064

TOTAL 8,565,988 2,068,509 7,975,951 1,980,491

Source: Investment Coordinating Agency, Statistics Agency, and Min. Of Industry

Note: Exchange rate is Rp. 13,360/$ 1, as of February 23, 2017.