Uncertainty over the control of COVID-19 has led to a decline in trading in various industries as buyers are refraining from making new purchases. Especially cotton is nearing its lows of early December 2019, after a rally in January. Though in the last few weeks, sale and shipments of cotton have seen strong business in the US, however, the pace is likely to be impacted because of the epidemic. As per USDA’s early projection, the US cotton planted acreage in 2020 is likely to decline by 9 per cent to 12.5 million acre.

Besides Coronavirus, other factors that are likely to contribute to the uncertainty regarding acreage decisions for 2020 include: production issues and results during 2019, the effects of the Phase One trade agreement with China and the impact of the coronavirus on cotton demand. The final look at projected acreage for 2020 comes with USDA’s Prospective Plantings report on March 31, based on a survey of producer planting intentions to be conducted in early March.

US cotton sales decline by 33 per cent

The net sales of cotton variety 235,300 RB declined for 2019/2020 declined by 33 per cent from the previous week and 30 per cent from the prior 4-week average. Similarly though exports of 375,700 RB declined by 6 per cent from the previous week, but increased by 5 per cent from the prior 4-week average. These exports were primarily directed to countries like Pakistan (97,100 RB), Vietnam (85,200 RB), China (46,400 RB), Turkey (31,400 RB), and Indonesia (21,100 RB). Exports of 57,300 RB, including 700 RB switched from Japan to Vietnam and 400 RB switched from Taiwan. Exports of 57,200 RB to Pakistan decreased while the export of 46,600 RB and 7,300 RB switched from Vietnam to Turkey.

International recognition to cotton through HIRA

In India, the Cotton Corporation of India (CCI) launched ‘HIRA or High in Reliable Attributes’ a brand of Indian cotton with specific quality parameters. Having less than 1.7 per cent of trash, low moisture, better grade, etc, this initiative will help Indian cotton get international recognition. CCI also supports Indian cotton farmers by purchasing best possible quantity and quality at MSP price. Both CCI and Maharashtra Cotton Federation jointly can buy more than 10 million cotton bales for the season 2019-20, which would be nearly 25-30 per cent volume of estimated crop for the season 2019-20. This would support the Indian spinning industry as well if CCI sells its cotton when the industry needs it, at real prices, and an actual premium for quality cotton. Indian physical cotton market has not yet achieved the ratio of 1:1 with international cotton prices as seed cotton prices are higher due to MSP support and they trade at its lower level with lower cotton lint prices. Most ginning factories have reduced production to reduce losses, thus resulting in low availability of quality cotton (bales) in the market.

Till February 2020 -end, around 26-26.50 million bales of cotton bales are likely to grow in India. Farmers still have good amount of quality cotton in view of better prices in near future.

In the current month, MCX cotton is trading at lower prices than the physical cotton prices in open market. As of now Indian currency is one of the most stable currencies, trading within narrow range limiting currency risk to market. It would be interesting to see how CCI will move ahead to sell its cotton in this international bearish sentiment due to COVID-19.

Ar Arvijin Delgerekh Cooperative, which specialises in producing and weaving yak wool plans to add more looms and larger factory space this year. The association will continue to work with herders and help them boost income, while creating internationally marketable products.

All 225 members of the cooperative have received training on how to tease and prepare yak wool fibers.Today, herders throughout the province benefit from understanding the value of their yak’s fur. Dagiitserev Lkhagvasuren, a local herder who joined the cooperative in 2018 was able to tease about 560,000 Mongolian tugriks’ ($202.50) worth of fiber from his 27 yaks.

Herders who have been with the cooperative since it opened have seen tremendous increase in the demand for and value of their yaks’ wool. Choisuren Namsraikhorol, a local herder, earns about 20,000 tugriks ($7.23) for one kilogram of wool. The collective exports the pure fibers and makes yarn for local use, while also weaving yak wool products like shawls and clothing. Annually, they sell about 1,500 textile products at the collective’s retail outlet, Baby Yak, which opened in 2018.

Data compiled by Bloomberg and Company covering 50 listed firms, almost half of China’s listed consumer companies don’t have enough cash to survive another six months, underscoring the urgent task Beijing has to re-start its economy and get shoppers spending again.

Restaurants are in the worst shape as COVID-19 outbreak has kept consumers at home, with about 60 per cent unable to cover labor and rental costs.. Among jewelry and apparel companies, almost half don’t have the cash to last the six months unless demand rebounds sharply, the data show.

While the number of Coronavirus infections in China has tapered off and retailers including Starbucks and Haidilao International Holding have reopened more of their stores in low-risk areas, demand looks unlikely to rebound quickly as consumers remain hesitant to leave their houses after weeks of government warnings about the dangers of mingling with others.

China is also now on guard for a second wave of infections, in part from people traveling back to the country from other affected areas. Although Chinese factories have resumed production, hopes of a V-shaped recovery in retail and services have waned as the pandemic widens globally, sickening over 210,000 people and killing over 8,700. Economists now expect $2.7 trillion to be wiped from the global economy.

Many of China’s small and medium businesses are already collapsing as they run out of cash, but the vulnerability of the publicly listed consumer companies points to greater economic danger, as some of these employ thousands of workers across the country.

The Council for the Development of Cambodia (CDC) has approved three garments projects worth a combined $7 million. They are expected to create some 1,820 jobs. All three projects highlight continued attractiveness for investors into the Kingdom.

Among the green-lighted ventures approved by the CDC includes a project by MIL United Manufacturing with a capital investment of $2.3 million in Kandal’s province Kandal Stung district. The rest are Jin Ming Li Jian One with capital investment $2.3 million in Kampong Spue’s province Kong Pisey district and the Suzen (Cambodia) Industrial with $2.4 million. It will build a factory in Tbong Khum province’s Suong Town municipality. There are now a total of 1,730 factories operating in the Kingdom.

During the first eight months of last year, the CDC approved 222 projects worth more than $6 billion, an increase of 81 projects worth $1.88 billion in the same period in 2018.

CDC continues to receive applications for new projects despite recent challenges to the local economy, such as the EU’s partial cancellation of Cambodia’s Everything But Arms (EBA) scheme and the global outbreak of the novel coronavirus.

Fitch Ratings has cut India's growth forecast to 5.1 per cent for fiscal 2020-21, with COVID-19 pandemic likely to hit business investment and exports. It had projected India's growth at 5.6 per cent for 2020-21 last December. In its Global Economic Outlook, Fitch said the number of infected will rise but the outbreak will remain contained.

The agency states, supply-chain disruptions are expected to hit business investment and exports. GDP growth is likely to remain broadly steady at 5.1 per cent in the fiscal year 2020-2021 following growth of 5.0 per cent in 2019-2020. While India’s linkages with China are modest, manufacturers in India are heavily reliant on key Chinese intermediate inputs, especially of electronics and machinery and equipment.

The difficulties facing Indian economy have been exacerbated by Yes Bank failure. Fragilities in the financial system will further undermine sentiment and domestic spending. The overall financial system remains burdened with weak balance sheets, which will limit any upside to credit and growth despite policymakers'' efforts in recent months to ease stresses.

Affected by COVID-19, the market for direct-spun PSF decreased more slowly, so its cash flow was considerable. Upon high cash flow of direct-spun PSF, downstream buying interest was thin though the price has declined below 6,000yuan/mt. Downstream expected prices to move down to about 5500yuan/mt. However, direct-spun PSF plants did not show strong willingness to undersell with low inventory. In addition, as crude oil and polyester feedstock rebounded and tended stable, downstream plants more intended to go bottom fishing, but with adequate stocks of raw materials and high spot price, operation by futures mode appeared.　

Currently, only a few plants operated by futures, and they were centered on May-Jul contracts. Take May contracts as an example. May direct-spun PSF futures price = May polyester feedstock futures price + (1200~1300)yuan/mt.

For direct-spun PSF plants, they gained mixed profits due to different processing costs. The processing cost of some old plants including water, power, labor and so on was at about 800-900yuan/mt without depreciation, while that of those which were put into operation within 10 years was mostly at 1,000-1,200yuan/mt.

From the perspective of downstream spinners, the futures price was about 5500yuan/mt or lower, indicating more opportunities than risks. In particular, as the recycling of re-PET was difficult, re-PSF price moved up close to direct-spun PSF price, thus downstream spinners shifted to use direct-spun PSF in production increasingly, which was a good opportunity for direct-spun PSF to squeeze re-PSF despite the tough year. Therefore, the demand for direct-spun PSF was relatively optimistic.

On the other hand, some plants did not want to adopt this operation as customers were mostly sensitive to price and they may not have high loyalty. Therefore, they did not want to adopt this operation.

Crisil has cut India’s base-case gross domestic product (GDP) growth forecast for fiscal 2020-21 to 5.2 per cent from 5.7 per cent. The new assessment factors in the huge uncertainty because of COVID-19, with risks to the forecast tilted downwards. The forecast will be reassessed continuously as new information comes in.

A serious downside to the rating agency’s base case can emerge from two developments. One, the pandemic is not contained by April-June 2020 globally, and makes the global slowdown more severe. And two, it spreads rapidly in India, affecting domestic consumption, investment, and production. These would further hurt confidence and the financial markets, CRISIL said in a press release.

In any case, India has little policy firepower to give a meaningful push to growth, and the pandemic is making it more difficult. While there will be steeper deceleration in global growth and India’s trade, what is unclear is the extent of impact on economy through domestic channels of production (supply) and consumption (demand).

The answer would depend largely on the extent of spread within India. So far, India is among the Asian economies that aren’t deeply impacted

China Lilang, a prominent menswear manufacturer and retailer from China, fears 2020 could be contradictory to what 2019 was as far as sales are concerned. The menswear brand saw an impressive surge of 15 per cent in sales last year touching $515.78 million. Amidst huge store expansions all through 2019, many outlets were relocated as a part of business strategy to enhance its exposure to customers.

China Lilang opened, on an average, 3 stores every week in 2019. Its profit from operation increased to $138 million (11.1 per cent), net profit touched $ 114.5 million last year, which is a jump of a little over 8 per cent. However, the retailer is worried about 2020. The Coronavirus has hit the sales in a big way, which may force it to bring down the production of Autumn 2020 items so as to help outlets destock Spring inventories.

The CFDA and 90 business groups including the National Retail Federation, Accessories Council, and Fashion Footwear Association of New York have brought their concerns to the White House, sending a letter to President Trump calling for economic stabilisation efforts amidst the Coronavirus pandemic.

The letter commends the administration and Congress for their public health efforts and actions to minimize the economic fallout caused by the spread of the virus. It goes on, however, to state: The economic harm from social distancing and mandatory store closures will surely be followed by layoffs and economic hardships. The biggest single issue facing the industry right now is liquidity, and federal stimulus efforts must be swift and flexible enough to address the urgent need for access to credit to keep these businesses afloat.

The letter concludes by encouraging policymakers to develop proposals that support the retail workforce and to provide a “bridge” for retail businesses of all sizes to stay viable during the crisis.

To help prevent the further outbreak of the COVID-19 epidemic, all global retailers like Glossier, Nike, Urban Outfitters, and Patagonia have indefinitely shut their stores. They have also updated their working policies to ease the strain on their staff. For instance, Starbucks has introduced a ‘catastrophe pay’ scheme for its US employees, by which, the retailer will pay staff for upto 14 days if they are diagnosed or have been in contact with someone suffering from Coronavirus.

Consumers switch to online shopping

During this week, with most of retailers shutting stores, e-commerce sales have surged by a staggering 71 per cent. However, most of this surge is restricted to categories like garden furniture, crafting, etc. Fashion sales, on the other hand, have dipped. American expenditure on fashion has declined as instead of fashion merchandise, Americans are preferring to stock essential goods.

The situation is similar in other markets too, in China, sales of household staples such as rice and flour have quadrupled on JD.com since the same period the previous year. In the UK, supermarkets, online grocery delivery slots have sold out for the next three weeks at least.

Though these ecommerce retailers may benefit in the short-term, they are likely to face issues relating to stock and supply chain in future. Hence, it would be important for them to quickly invest in order to meet demand.

An opportunity for omni channel retailers

Closure will also have a big impact on the revenues of brick and mortar retailers like Primark. However, it would provide omnichannel retailers with an opportunity to shift their focus to ecommerce.

For the most in-demand online retailers, delays or disruption in deliveries could negatively impact their brand’s reputation or loyalty in both the short and long term. Earlier this month, Amazon warned customers deliveries would be slower than usual, and since, there have been complaints that certain categories are continuously out-of-stock.

Being customer-friendly

Going forward, retailers need to be both transparent as well as vocal about how they are approaching the situation. A majority of retailers have been sending out marketing emails in order to address how they are handling the situation. However, they also need to be responsive on social media and other digital customer support channels.

These e-commerce retailers also need to adopt the practice of ‘no-contact deliveries whereby delivery workers leave packages at the door. Indeed, some of them are seen to be taking proactive steps to help and protect their consumers. For example, Louis Vuitton owner, LVMH, has begun to use its perfume production lines to make hand sanitisers, which the brand is sending out to hospitals in France. Elsewhere, retail stores are precautionary measures like going cashless or staggering entries.