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China’s renewed pricing power in apparel/footwear exports is showing up left and right. China imported 211,000 tons of Cotton in June –off 16% vs last year. Why the decline? It probably has something to do with the fact that 50% of the 20,000 factories in the Dongguan province in China have closed year-to-date. It does not take much to do the math there. Lower production = diminished need for inputs. This plays into my theme of China passing pricing power through to marginal US players. I should note that India, Thailand and other Asian countries are picking up the slack production, but thus far are following China’s pricing lead. I’ll be keeping a close eye on whether anyone breaks rank.

An interesting call out is the rather meaningful shift we’re seeing over the past few months in Chinese exports by destination. The growth rate in shipments to the US is slowing meaningfully, but we’re not seeing carry through into the EU. The European retail environment has been strong enough to accept price increase to a certain degree, but that’s starting to turn. I’m starting to scout out potential losers vs. winners in Europe. Stay tuned.
EU and US imports from China are diverging at the wrong time for European retailers and those with exposure to the region.