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Retail Sourcing Report Facts & Insight

Q2 2019

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RETAIL SOURCING REPORT CBX Software’s Retail Sourcing Report provides research and analysis aimed at informing global sourcing and buying decisions for retailers, brands and other sourcing and supply chain professionals. Each issue includes a snapshot of key information and trends impacting global sourcing, such as economic conditions in sourcing countries, container shipping trends, currency exchange and commodity rates. We also cover hot topics ourselves and include insight from analysts and other experts.

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Q2 2019 Retail Sourcing Report

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Content

RETAIL SOURCING REPORT ............................................................................................................................ 0

FORWARD ..................................................................................................................................................... 1

PURCHASING MANAGER’S INDEX (PMI) ................................................................................................... 3

LOW COST COUNTRY SOURCING (LCCS) HIGHLIGHTS ........................................................................ 4

GLOBAL COMPETITIVENESS INDEX ......................................................................................................... 5

CHINA WAGE TREND SNAPSHOT .............................................................................................................. 6

GLOBAL LOW-COST COUNTRY SOURCING WAGE SNAPSHOT ........................................................... 7

CONTAINER FREIGHT RATES FOR MAJOR ROUTES ............................................................................. 8

CURRENCY EXCHANGE RATES ................................................................................................................. 9

GLOBAL COMMODITY RATES .................................................................................................................. 10

CRUDE OIL ................................................................................................................................................. 10 RUBBER ..................................................................................................................................................... 10 METALS ...................................................................................................................................................... 10 COTTON ..................................................................................................................................................... 11 WOOL......................................................................................................................................................... 11 PLASTICS AND FIBERS ................................................................................................................................. 12

FOCUS TOPICS ........................................................................................................................................... 12

QUALITY CONTROL INDICATORS ................................................................................................................... 12 US/CHINA TRADE WAR DE-ESCALATES........................................................................................................ 13

ABOUT CBX SOFTWARE ........................................................................................................................... 15


3

Purchasing Manager’s Index (PMI)

To help understand industry and economic conditions in a country, the PMI Index tracks variables such as output, new orders, stock levels, employment and prices across private companies in the manufacturing, construction, retail and service sectors. Over 30 countries and regions participate in various PMI surveys. A reading below 50 indicates contraction from the previous month, while a reading above 50 indicates growth. This update looks at a selection of emerging economies and key sourcing countries, providing indicators for recent months based on data provided by IHS Markit, NIKKEI, CAIXIN and other sources. Q2 2019 News & Analysis: Moderate growth, wage pressures and slowing demand in the EU impacted nearshore sourcing locations in Eastern Europe through Q1. Similarly, Mexico and Columbia saw sustained downturns in new export orders and raw material purchasing. In contrast, Asian economies such as Vietnam, Indonesia, India and Myanmar had a solid Q1, along with China which made 5 year record gains in employment, signaling some improvement in the manufacturing sector. Analysts still warn of a potential global slowdown through 2019.

Country Jan 2019

Feb 2019

Mar 2019

Summary of Indicators

Brazil 52.7 53.4 52.8 Brazil’s manufacturing economy continued to boom through Q1 with increases in new orders, output and input buying, despite some inflationary pressure.

China 48.3 49.9 50.8 Bucking the trend of manufacturing economies, China saw an increase in demand and output with employments gains which signal optimism for 2019.

Columbia 48.5 49.5 48.9 Manufacturing in Columbia declined through Q1 to a low in March with a contraction in new orders, job cutting and declines in input purchasing.

Czech Republic

49.0 48.6 47.3 A four month decline in Czech manufacturing continued in March, with falling foreign demand, lower orders and output fueling the worst month in 6 years.

India 53.9 54.3 52.6 While operating conditions in the Indian manufacturing sector remained solid through Q1, March saw a slowdown in orders, input buying and employment.

Indonesia 49.9 50.1 51.2 Indonesia saw a moderate expansion in their manufacturing economy through Q1, with increases in new orders, output and employment fueling confidence.

Malaysia 47.9 47.6 47.2 Malaysian manufacturers continued to face challenges through Q1 signaling a tough year with weak export demand, despite stable input and output costs.

Mexico 50.9 52.6 49.8 Conditions in Mexico’s manufacturing sector deteriorated in March after a strong 16 month run into 2019, with stagnation in new orders and lower output

Myanmar 51.9 53.1 52.4 Myanmar saw a moderate improvement in their manufacturing sector through Q1 with growth in new orders, output and employment all picking up.

Poland 48.2 47.6 48.7 Despite modest gains, Polish manufacturing continued to contract through Q1 on lower export demand and declines in purchasing and employment.

Russia 50.9 50.1 52.8 Continuing a trend of growth through Q1, Russian manufacturers saw an increase in output and new orders, mostly on domestic over foreign demand.

South Africa 49.6 50.2 48.8

Operating conditions in South Africa’s private sector deteriorated in March and through Q1 on falling orders, slow employment and low business confidence.

South Korea 48.3 47.2 48.8

While gaining moderately in Q1, South Korea’s manufacturing slump continued as demand from new orders, output and employment all contracted.

Turkey 44.2 46.4 47.2 PMI numbers suggest that Turkey’s manufacturing sector moved towards stabilization through Q1, with output and employment making modest gains.

Vietnam 51.9 51.2 51.9 Vietnam continued to show strength in their manufacturing through Q1 on rising exports and strong demand, supported by low inflation on inputs.

Sources: IHS Markit Economics, Nikkei, Caixin


4

Low Cost Country Sourcing (LCCS) Highlights

This section looks at selected issues impacting sourcing from key LCCS destinations based on data available at the time of printing the report, alongside official import/export numbers highlighting global sourcing trends. Bangladesh – After considerable unrest, Bangladesh announced a revised wage structure for the garment sector in January which will see grade 1-6 workers receive an increase of 15 takas to 747 takas. Cambodia – US exports grew by 26.2% in 2018 to US$3.87 billion, mostly due to travel goods exports, knitwear, woven garments and footwear. Duty free exports under the GSP program helped drive exports. India – New e-commerce rules took effect in India on February 1 which bans e-commerce companies such as Amazon and Walmart owned Flipkart from selling products in which they have an equity interest. Indonesia – Indonesia and Australia concluded their IA-CEPA agreement on March 4 which allows Indonesia to import goods into Australia duty free. Australia can now also export 99% of goods duty free. Pakistan – The Pakistani government approved the withdrawal of customs duties on cotton imports effective February 1 to June 30, 2019 to ensure sufficient cotton supply for garment production exports. Philippines – The Philippines is considering providing more incentives to encourage foreign investment to revitalize their once buoyant garment/apparel sector, which had only US 0.93 billion in exports in 2018. Thailand – Following a recent general election in March and populist sentiment, Thailand is looking at raising their minimum wage to 400 baht per day, which would be a 20-30% increase. Turkey – Turkey’s Textile and Apparel Exporter’s Association said garment exports (US$2 billion in 2018) will be hard hit if the UK proceeds with a no deal Brexit. UK is Turkey’s third largest garment export market. Vietnam – In March, Vietnam’s Ministry of Industry and Trade approved a plan including education and communication to implement the Trans-Pacific Partnership (CPTPP) which came into effect on January 14.

Exports (% yoy growth)

Aug 2018

Sep 2018

Oct 2018

Nov 2018

Dec 2018

Jan 2019

Feb 2019

Bangladesh -11.7 54.6 30.5 11.9 2.2 8.0 - Cambodia 24.5 13.0 -3.8 - - - - India 19.2 -2.2 17.9 0.8 0.3 3.7 -

Indonesia 4.5 2.4 4.2 -2.8 -3.6 -4.3 -11.3

Pakistan 8.4 3.6 1.2 -6.4 5.5 4.0 -

Philippines 3.4 0.8 5.5 -0.3 -12.3 -1.7 - Thailand 6.7 -5.2 8.7 -0.9 -1.7 -5.6 5.9

Turkey -6.9 21.9 12.7 9.3 -0.1 5.9 -

Vietnam 16.7 15.8 15.2 14.5 13.2 8.9 4.2

Imports (% yoy growth)

Aug 2018

Sep 2018

Oct 2018

Nov 2018

Dec 2018

Jan 2019

Feb 2019

Bangladesh -2.0 23.3 15.6 0.3 - - -

Cambodia 48.9 13.4 51.8 - - - -

India 25.4 10.5 17.6 4.3 -2.4 - - Indonesia 24.5 14.2 24.0 11.8 1.7 -9.0 -14.0 Pakistan 1.4 -0.2 -1.0 -2.8 -8.9 -19.1 -

Philippines 11.0 26.1 21.4 6.8 -9.4 5.8 -

Thailand 22.8 9.9 11.2 14.7 -8.1 14.0 -10.0 Turkey -22.7 -18.3 -23.8 -21.3 -28.3 -27.2 -

Vietnam 12.4 11.6 12.4 12.1 11.1 5.4 5.8

Sources: News Reports, Fung Group, Various Statistical Bureaus


5

Global Competitiveness Index

The Global Competitiveness Index is a ranking of countries based on their competitiveness across different measures such as government regulations, labor market efficiency, education, infrastructure and other measures important to doing business in a country. Below is a selection of emerging economies which are important low cost and strategic sourcing locations. Most of these countries are increasing their competitiveness on key economic measures every year, with China leading overall. Note: The below data is released annually by the World Economic Forum (WEF). For this report we have selected relevant countries and updated the chart as of current data released in October 2018. Global Competitiveness Index: Selected Indicators, 2017-2018 (Ranking of 140 countries)

Rank/140 Bangladesh Cambodia China India Indonesia Pakistan Philippines Thailand Turkey Vietnam

Overall competitiveness 103(↓4) 110(↓16) 28(↓1) 58(↓18) 45(↓9) 107(↑8) 56(-) 38(↓6) 61(↓8) 77(↓22)

Institutions 108(↓1) 126 (↓20) 65(↓24) 47(↓8) 48(↓1) 109(↓19) 101(↓7) 60(↑18) 71(-) 94(↓15)

Intellectual property protection 119(↑5) 123(↑7) 49(-) 45(↑7) 44(↑2) 83(↑14) 52(↑19) 99(↑7) 94(-) 105(↓6)

Burden of government regulation

69(↑9) 61(↑7) 18(-) 16(↑4) 26(↑1) 46(↑18) 91(↑20) 58(-) 74(↓7) 96(↓20)

Infrastructure 109(↑2) 112(↓6) 29(↑17) 63(↑3) 71(↓19) 93(↑17) 92(↑5) 60(↓17) 50(↑3) 75(↑4)

Quality of roads 111(↓6) 100(↓1) 42(-) 51(↑4) 75(↓11) 69(↑7) 88(↑16) 55(↑4) 33(↓3) 109(↓17)

Quality of railroad 40(↑20) 78((↑16) 58(↓41) 38(↓10) 82(↓52) 52(-) 87(↑4) 54(↑18) 51(↑6) 57(↑2)

Quality of port 93(↓8) 86(↓5) 48(↑1) 40(↑7) 61(↑11) 69(↑4) 84(↑30) 68(↓5) 50(↑4) 78(↑4)

Quality of air transport 109((↑6) 114(↓8) 63(↓18) 53(↑8) 49(↑2) 89(↑2) 92(↑32) 48(↓9) 35(↓4) 101(↑2)

Macroeconomic environment 88(↓32) 74(↓4) 39(↓22) 49(↑31) 51(↓25) 103(↑3) 43(↓21) 48(↓39) 116(↓66) 64(↑13)

Health & primary education 96(↑6) 104(↓3) 44(↓4) 108(↓17) 95(↓1) 109(↑20) 101(↓19) 42(↑48) 48(↑36) 68(↓1)

Higher education & training 116(↑1) 121(↑3) 63(↓16) 96(↓21) 62(↑2) 125(↓5) 67(↓12) 66(↓9) 77(↓29) 97(↓13)

Goods market efficiency 123(↓29) 114(↓29) 55(↓9) 110(↓54) 51(↓8) 122(↓15) 60(↑43) 92(↓59) 76(↓23) 102(↓11)

Prevalence of trade barriers

36(↓1) 84(↑9) 57(↑1) 53(↑1) 73(↑6) 110(↓4) 42(↑22) 61(↑6) 62(↓17) 124(↓15)

Trade tariffs, %duty

128(↓2) 98(↓2) 124(↓6) 133(↓9) 77(↓10) 138(↓3) 55(↑3) 92(↓3) 78(↓3) 93(↓2)

Labor market efficiency 115(↑3) 65(↓17) 69(↓31) 75(-) 82(↑14) 121(↑7) 36(↑48) 44(↑21) 111(↑16) 90(↓33)

Cooperation in labor-employer relations

87(↓11) 60(↑7) 52(↓2) 45(↑11) 50(↓9) 108(↑17) 24(↑9) 35(↑1) 113(↑5) 92(↓7)

Flexibility of wage determination

81(↓23) 109(↓9) 98(↓9) 95(↑9) 71(↑28) 123(↓1) 45(↑41) 111(↓8) 35(↑16) 89(↓8)

Pay and productivity

78(↑2) 55(↑9) 27(↓1) 23(↑10) 18(↑4) 61(↑24) 10(↑33) 36(↑11) 95(↓4) 66(-)

State of cluster development

63(↑2) 45(↑3) 29(↓2) 26(↑5) 28(↓2) 54(↑1) 49(↑13) 55(↑12) 80(↓21) 77(↓9)

Source: World Economic Forum (WEF)


6

China Wage Trend Snapshot

Q2 2019 News & Analysis: In 2018, 20 of China’s 31 regions increased their minimum wages compared to only 9 regions in 2016. With manufacturing slowing down compared to the boom years, China has continued to boost wages to support domestic consumption. Q1 2019 GDP growth registered at 6.4%, higher than expected given the slowdown in late 2018, which led to a 5-year record in employment gains. Domestic consumption made up 65% of China’s economic growth in the first part of this year, down from 79% in Q4, 2018. Note: These are official wage guidelines mandated by each province or region based on information publicly available as of April 1, 2019. As such these numbers serve as an indicator. Actual wages may include benefits, food, housing etc. Minimum wage is typically 40-60% of average total wage.

2019 Minimum Wage Updates (official) (District variances are averaged across province)

City/Region/Province Monthly Min Avg Wage (RMB)

Increase % Official Update

Anhui 1,520 20.6% Nov 1, 2015

Beijing 2,120 5.8% Sep 1, 2018

Fujian 1,700 13.3% Jul 1, 2017

Chongqing 1,800 20.0% Jan 1, 2019

Gansu 1,620 10.2% Jun 1, 2017

Guangxi 1,680 16.7% Feb 1, 2018

Guangdong 1,796 12.3% Jul 1, 2018

Guizhou 1,680 5.0% Jul 1, 2017

Hainan 1,430 12.6% Feb 1, 2016

Heilongjiang 1,680 15.4% Oct 1, 2017

Henan 1,900 8.2% Oct 1, 2018

Hebei 1,650 12.5% Jul 1, 2016

Hubei 1,750 13.1% Nov 1, 2017

Hunan 1,580 13.6% Jul 1, 2017

Inner Mongolia 1,760 8.0% Aug 1, 2017

Jiangsu 2,020 8.1% Aug 1, 2018

Jiangxi 1,680 15.1% Jan 1, 2018

Jilin 1,780 22.5% Oct 1, 2017

Liaoning 1,620 7.6% Jan 1, 2018

Ningxia 1,660 12.4% Oct 1, 2017

Qinghai 1,500 15.3% May 1, 2017

Shaanxi 1,800 7.0% May 1, 2019

Shandong 1,910 6.7% Jun 1, 2018

Shanghai 2,480 2.5% Apr 1, 2019

Shenzhen 2,200 4.9% Jul 1, 2018

Sichuan 1,780 7.1% Jul 1, 2018

Tianjin 2,050 5.1% Jul 1, 2017

Tibet 1,650 17.8% Jan 1, 2015

Xinjiang Uyghur 1,820 12.9% Jan 1, 2018

Yunnan 1,670 10.6% May 1, 2018

Zhejiang 2,010 8.4% Dec 1, 2017


7

Global Low-Cost Country Sourcing Wage Snapshot

Below is a snapshot of minimum wages in selected Asian sourcing locations, with the addition of Egypt, Ethiopia and Turkey to give a comparative view. Wages vary by region or province and indicate either an estimated or actual/official rate. In cases with a distinct variance, we provide an average. Currency fluctuations mean that these figures are approximate at the time of finalizing this report. Q2 2019 News & Analysis: Countries of note which received minimum wage increases in Q1 include Bangladesh, which saw grade 1-6 level garment workers receiving an increase to their daily wage. Malaysia, Vietnam and Turkey also increased official wages as production continues to shift from China. Meanwhile China continues to increase their minimum wage across regions to spur domestic consumption. Note: Figures are provided in USD/month based on currency exchange as of April 1, 2019. Minimum wage policies are updated as per data available at the time of finalizing this report and are based primarily on unskilled wages. Consult sources such as Fair Wage Guide or Wageindicator.org to assess and calculate benchmarks for wages in particular countries and regions not covered here.

BANGLADESH CAMBODIA CHINA EGYPT ETHIOPIA

$95 (Jan 2019) $182 (Jan 2019) $137-$639 (April 2018) $116 (April 2019) $18 (Jan 2015)

Bangladesh announced a wage increase to BT8000 (US&95) a 51% increase from the previous minimum wage which had been in place since 2013. Unions were calling for a BT16000 minimum wage.

Cambodia increased the minimum wage for the second consecutive year, to US$182, a 7.1% increase, which will take effect from January 1, 2019. Labor tension and strikes have calmed down.

Minimum wages in China are set by local governments and vary widely by region wages formulas (with housing, food, overtime etc.) Wages continue to increase each year in most regions.

Egypt raised the country’s minimum age to 2000 Egyptian pounds ($116) from 1200 pounds, applying to all workers, with higher increases going to private sector workers. This increase came ahead of a June 30 target date.

Ethiopia is working on a system to determine a min. wage for the private sector (wage guidelines exist for govt. workers). Entry level wages in the textile sector range from $35 -$40. The base min wage is officially $18.

INDIA INDONESIA LAO PDR MALAYSIA MYANMAR

$40-$130 (Jan 2018) $115-$273 (Jan 1/18) $108 (May 2018) $263 (Jan 2019) $108 (Mar 2018)

Indian min. wages vary by region and skill level; however, the central Indian labor ministry is considering a significant increase for 2018, which could bring wages up to $280 in some areas.

In October 2018, Indonesia’s manpower minister proposed an 8.13% minimum wage increase for 2019 and urged the provinces to accept. Indonesia wages vary by their 34 provinces and regions.

The Lao Government approved an increase in minimum wage from Kip 900,000 (US$107) to Kip 1,100,000 (US$142)) in key provinces for 2018. This raise took effect in May 2018.

Malaysia implemented a nationwide minimum wage of RM 1,100 as of January 2019. Wages vary by region and are supposed to be reviewed every 2 years. The new directive is being enforced widely.

Myanmar revised its minimum wage from K,600 Kyat ($2.70) per day to K4,800 (3.60) or K600 per hour for an eight-hour work day. This represents an increase of 33%, mostly impacting garment workers.

PHILLIPPINES SRI LANKA THAILAND TURKEY VIETNAM

$110-220 (Jan 25/18) $67 (Mar 2016) $190-$196 (Apr 1/18) $381 (Jan 2019) $125-180 (Jan 1/19)

Wages in the Philippines vary by region, skill level and wage classification. Negotiations are still underway, but Manila for example saw a 21 Peso ($0.42) increase in their daily wage to 491 Pesos ($9.82) in Q4 2017.

Sri Lanka adopted two laws on minimum wages as of early 2016, mandating a minimum wage of Rs 10,000 (+/- $67) and an increase of Rs 2,500 (+/-f$17) for workers earning less than Rs 40,000 per month (+/- $270)

Thailand increased minimum wages for the first time since 2013 by 2-5%, or around 5-22 Baht per day across the 69 provinces. Wages will range from 308 to 3330 THB ($9.60-$10.58) per day for unskilled workers.

Turkey announced a minimum wage increase of 26% for 2019 to 2,020 Lira per month. The hike was due to high inflation which has caused havoc on the Turkish economy in the past year. The economy grew by only 1.6% yoy in 2018.

Vietnam announced they will increase their minimum wage by 5.3% in 2019. This increase was relatively lower than the 2018 increase of 6.5%. Wages range from $125-$180 / month across 4 key regions in Vietnam.

Sources: WageIndicator.org, SAFSA, Local News Reports


8

Container Freight Rates for Major Routes

Q2 2019 News and Analysis: Q1 saw an easing in the trade tension between the US and China which should influence container shipping volumes and rates in Q2 and Q3. Shippers pushed containers through in Q1 to avoid increased tariffs, which made for larger than usual volumes. The prediction is that the global economy and demand for consumption goods will slow through 2019, meaning lower than average container shipments. Prices however are expected to remain stable due to capacity control by carriers.

Asia - Europe Trade Lanes

Container volumes on the busy Asia-Europe trade lanes increased by only 1.4% in 2018, a sharp drop compared to 4.5% in 2017. While there was a spike in volume pre-Chinese New Year and increased shipments due to tariffs, overall volumes are trending down this year.

Prices on the other hand have increased, with the current rate per TEU of $640, up by 10% compared to the same week in 2018. The rate increases are thought to be a result of better capacity management and rate discipline by the carriers. Growth of import volumes into the EU are expected to slow down this year as the broader EU economy shows signs of weakening.

Asia – North America Trade Lanes

US imports from Asia were down 1% in Jan/Feb 2019 compared to the same period in 2018, pointing to a weak first quarter. Forecasts for 2019 point to single digit increases in imports from Asia to North America, with total capacity remaining similar to 2018.

Despite easing in trade tension between the US and China, Carriers are being conservative with adding capacity on trade lanes in an attempt to avoid the volatility in spot rates that characterized 2018. No new services will be introduced on the Trans-pacific lanes for the first time since 2009.

Sources: IHS Markit, Joc.com Alphaliner, SeaIntel


9

Currency Exchange Rates

Following are exchange rates and indicators for major currencies commonly factored into global sourcing costing estimations. Easing of the US/China trade war has supported stabilization in global trading currencies. The EU region continues to suffer from slower economic growth which has dimmed the outlook for improvement in the Euro. China on the other hand has benefited from the easing of tension, with a stronger growth forecast for 2019 supporting the Chinese Yuan. While the USD has maintained stability, some uncertainty with potential rate hikes could impact the USD through 2019. EUR / USD (April 2018 – April 2019)

EUR / CNY (April 2018 – April 2019)

USD / CNY (April 2018 – April 2019)

Sources: XE.com, News/Analyst Reports

The EUR and USD remained relatively stable against each other in late 2018 through Q1 2019. Weakening in the EUR economy is expected to push the EUR to around 1.25 later this year, while the USD shows solid fundamentals.

EUR/USD Low High

2 years 1.07 1.25 1 year 1.12 1.24 6 months 1.12 1.18 3 months 1.12 1.15 30 days 1.12 1.14

The Euro continued a trend from the second half of 2018 losing value against the Chinese Yuan through Q1 2019. Tougher Economic conditions in the EU, softer consumption and inflation is expected to persist, putting pressure on the Euro.

EUR/CNY Low High


The CNY is expected to trade in the range of 6.60 to 6.70 based on the expectation the US and China will reach a trade deal by the end of May. China also had a stronger than expected Q1 and their economy shows signs of growth momentum which should support the Yuan.

USD/CNY Low High



10

Global Commodity Rates

Q2 2019 News & Analysis: Commodities had their best quarter in 3 years based on supply concerns and optimism over demand. Continued demand is a question with an EU slowdown and China and the US facing an uncertain 2019. Key commodities performed well, as oil prices gained through Q1, rubber climbed to year-on-year highs, and base metals saw double digit growth. The outlook is that China and the US will strike a deal, bringing stability through the remainder of 2019. The unknowns are the global economic climate, with the EU already slowing considerably and uncertain prospects for the US and China.

Crude Oil

Rubber

Metals

455055606570758085

Oil US$ per barrelDatedBrent,lightblend 38API

Dubai,medium, fobDubaiFateh 32APIWest TexasIntermedia40 API,MidlandTexas

1.01.21.41.61.82.0

Rubber, No. 3 Smoked Sheet (RSS3), Singapore ExchangePrice in US cents per kilogram

2851

2046

860

1000

2000

3000

0

4000

8000

12000

16000

20000

24000

28000Metals US$ per metric ton

Tin Aluminum Copper NickelZinc Lead Iron

Natural rubber prices climbed in Q1, reaching year on year highs. Prices have been supported by key exporters Indonesia, Malaysia and Thailand cutting output. The three countries agreed to reduce exports to 240,000 tons for 4 months starting April 1st to stabilize prices. Longer term demand is a question as signs of a global economic slowdown persist.

Oil prices surged through Q1, reaching a $72 2019 high on low prices and supply constraints in late Q4 2018. Stockpiles in the US fell in Q1 while OPEC supply cuts and sanctions against Venezuela and Iran have also put pressure on oil supply. While the near term is optimistic for oil prices holding, an economic slowdown in the latter half of 2019 could impact prices.

Falling stockpiles and easing of US/China tension helped bolster metal prices in Q1 to near 2 year highs. Led by Nickel, Zinc and Tin, most metals saw double digit gains despite strength in the USD. Continued demand is a question as the European economies falter, and demand from China and the US is uncertain. Stimulus measures by the Chinese government and a successful end to the US/China trade wars could turn the outlook.


11

Cotton

While down from the same period in 2018, cotton prices held steady through Q1 2019, seeing little impact from the US/China trade war. Supply and demand remain in a good balance heading into Q2. China which has reduced cotton reserves in recent years is starting to increase stock levels with imports to replenish their reserve inventories. Higher prices have put pressure on apparel producers who are unable to pass on price increases to end consumers. In the near term, production demand is expected to outpace consumption for the remainder of the year which should keep prices at similar levels.

Wool

Wool prices continued to perform well into Q1 2019, with premium Merino wool prices expected to outperform general apparel fiber prices. Demand from China is still a strong driver, as are supply constraints with an ongoing drought in Australia, a key producer. There is some uncertainty on supply, as South African wool is now back on the market after bans were lifted on exports due to a foot on mouth disease outbreak. Strong demand for fake fur coats in China has in part driven prices for crossbred wool higher. Crossbred wool uses less premium quality merino wool and half the cost.

Sources: Cotton Inc. and National Cotton Council

Source: Wool.com and various News Reports


12

Plastics and Fibers

A selection of plastic related prices is provided below. These are calculated from offer prices in the Plasticker Material Exchange, which provides an indication of trends. Q2 2019 Snapshot: Demand for synthetic fibers used in apparel and other applications as an alternative to natural fibers is expected to continue growing in coming years, especially with demand from the Asia Pacific and other developing economies. Synthetic fiber prices usually trend alongside oil prices, given that oil is a key input. With oil prices reaching near term highs in Q1, led by nylon and polyester, synthetic fiber prices fared well in Q1.

Sources: IMF data, Index Mundi Plasticker

Focus Topics

Quality Control Indicators

This report frequently covers quality control and quality assurance issues. Audit and inspection data provide an indicator of activity and trends in various sourcing regions. According to QIMA data, demand for inspections and both ethical and inspection scores increased through Q1 expanding in line with growth in China and other sourcing regions. Diversification to alternate sourcing destinations in Bangladesh, Cambodia and other countries pushed demand for increased inspections.

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

Plastics & Fibers, Regrind/ Flakes (Euros/kg)

Nylon

Polyester

ABS

PVC

PP

PS


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US/China Trade War De-escalates

The US/China trade dispute, which began in early 2018 and escalated into a near year-long trade war, is now seeing signs of de-escalation with both parties showing willingness to make concessions. While removing tariffs will benefit China, the Chinese have made it clear they are thinking ahead. Their focus is shifting from stimulus measures, which they have used in the past to maintain economic growth, to “structural reforms,” both domestic and foreign. This means they will focus more on sustainable long-term initiatives to drive economic maturity over short term measures such as stimulus and tariffs. While the Chinese are more willing to remove tariffs imposed since mid-2018, the US is still looking to keep tariffs on some Chinese imports. It seems President Trump, who has used tariff threats to forge better deals for the US, will continue to push for keeping some tariffs in place. While the trade war has had minimal impact on the US economy, it has created uncertainty across global economies. Below is a timeline of the key events over the past few months which have led to a de-escalation in the trade war as reported by consultant, Dezan Shira Associates.

April 3-5, 2019 – US and China hold trade talks in Washington US and Chinese negotiators held trade talks in Washington from April 3 -5, a week after negotiating in Beijing. On April 4, Trump met with Liu He, commenting that the two sides will know “over the next four weeks” whether they can strike a deal. April 1, 2019 – China bans all types of fentanyl China announced that it will ban all variants of the synthetic opioid fentanyl, effective May 1, 2019, in what is considered a concession to the US amid trade talks. Because of the opioid crisis in the US, China’s treatment of fentanyl production and distribution had been a source of tension in bilateral relations. March 31, 2019 – China extends the suspension of additional tariffs on US autos and auto parts China extended the suspension of additional tariffs on US autos and auto parts, which were set to go back into force on April 1, 2019. China previously placed retaliatory tariffs of 25 percent on such products in reaction to US tariffs, but suspended them in December 2018, effective January 1 to April 1, 2019. US autos are still subject to China’s standard tariff rate of 15 percent.


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March 28-29, 2019 – US and China hold trade talks in Beijing after a month break US and Chinese negotiators resumed trade talks in Beijing on March 28 and 29 after a month-long break. The break was partly due to the Two Sessions meetings, China’s biggest internal political discussions of the year. Officials called the trade talks constructive, with an enforcement mechanism to monitor China’s commitment to trade concessions reportedly a sticking point. February 21-24, 2019 – US and China hold talks in Washington; Trump extends tariff deadline On February 21, US and Chinese negotiators resumed trade talks in Washington and Trump met with Liu He and the media, expressing optimism about a trade deal. On February 24, Trump announced that he will extend the March 1 trade deal truce deadline, citing progress in trade talks. February 11-15, 2019 – US and China hold trade talks in Beijing On February 15, Xi met with top negotiators from the US, in what was widely interpreted as a goodwill gesture. At the end of negotiations, the US and China continue to have differences, but agree to keep talking in Washington the following week. February 7, 2019 – Trump says he will not meet with Xi before trade deal deadline Trump said that he will not meet with Xi in-person before the tariff ceasefire expires on March 1, 2019. Previously, on January 31, Trump said that he would meet with Xi in-person in February. January 30-31, 2019 – US and China hold 2-day trade talks in Washington D.C. The US and China held in-person talks in Washington D.C., with Liu He leading China’s trade delegation. During the negotiations, China offered to buy five million tons of US soybeans. Trump announced that he will meet with Xi in-person in February. January 22, 2019 – US cancels preparatory talks with China The US White House reportedly cancel a trade planning meeting with two Chinese vice ministers ahead of trade talks to be held in Washington D.C. US officials cited disagreements over the enforcement of IP rules as the reason for the cancellation. January 7-9, 2019 – US and China engage in 3-day trade talks in Beijing On January 7, official delegations from US and China began trade talks, which were held in Beijing – the first face-to-face meeting since agreeing to a 90-day truce, ending March 1. December 14, 2018 – China temporarily lowers tariffs on US autos; resumes buying US soybeans China’s temporarily removed the 25 percent tariffs on US autos and five percent tariffs on US auto parts for three months, beginning on January 1. During this period, US auto imports were subject to China’s standard 15 percent tariff rate. China also agreed to purchase 1.5 million tons of US soya beans. December 2, 2018 – US and China agree to temporary truce The US and China agreed to a temporary truce to de-escalate trade tensions, following a working dinner at the G20 Summit in Buenos Aires on December 1, 2018. According to the agreement, both the US and China will refrain from increasing tariffs or imposing new tariffs for 90 days (until March 1, 2019), as the two sides work towards a larger trade deal.


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