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September, 2009
Renegade-Auction

European Union Cigarette Trade
Becoming More Competitive


by John Parker

With a sharp global economic downturn starting at the end of 2008,
the US cigarette industry has a tough 2009 so far.

Exports of cigarettes from the United States had a traumatic decline of 56.9% to 10.66 bn pieces during January-May 2009 for a value of $157.6 mn. It now appears that the value for US cigarette exports in 2009 may be only about a tenth of the peak value of $4.968 bn recorded in 1994.

Cigarettes might be an example of where some managers of an industry are shipping jobs overseas. Back in 1994-96, when exports were at their peak, about 46,000 workers were employed in US cigarette factories, and exports accounted for sales of nearly a third of the output. Recently, the number of workers in cigarette factories was about half the peak of the mid nineties. The steep decline for cigarette exports contributed to the loss of about half of the jobs previously existing in cigarette factories in Virginia, North Carolina, and Kentucky.

Competition from cigarette exports from the EU, Switzerland, and South Korea contributed to the decline for US cigarette exports. Total world trade in cigarettes has remained relatively steady in the last fifteen years in the range of 16 bn pieces. The US share of world cigarette exports has declined from about a third of the total during 1994-96 to less than 2%.

Multinationals have cigarette factories in many countries, and some of the major brands purchased by American smokers are also made in factories found in a number of countries in Europe and Asia with a focus on expanding exports. Cigarette exports from Germany, Poland, and Switzerland made strong gains in recent years.

Problems with expanding domestic sales as retail prices rose contributed to German efforts to expand cigarette exports. Germany had dramatic gains for cigarette exports to East Europe after the entry of ten new EU members in 2004. As the growth in exports of German cigarettes to East Europe slowed, efforts to find new markets outside the EU intensified. Germany had spectacular gains for cigarette exports to Japan and Saudi Arabia in 2008 and early 2009. To a lesser extent, Switzerland has also taken market share away from some other cigarette exporting countries.

Japan Remains The Leading Destination For US Cigarette Exports: The major destination for US cigarette exports in the recent decade has been Japan. US cigarette exports to Japan tumbled 57% to 8.3 bn pieces in January-May 2009, valued at $126.7 mn. Even with that severe decline, Japan still accounted for over 80% of the value for total US cigarette exports in early 2009. US cigarette exports to Japan reached a peak of 86.7 bn pieces in 2005 and were 86.5 bn pieces in 2006. It now appears that US cigarette shipments to Japan in 2009 may be only about a fourth the level three years ago. Germany has taken a major share of the market for imported cigarettes in Japan. Managers of factories operated by Japan Tobacco International in Germany and Switzerland have a special connection for marketing cigarettes in Japan.

Steep Reduction Recorded For US Cigarette Export To Saudi Arabia: A rise in the average price for US cigarette exports to about 29.5 cents per pack of 200 in early 2009 may have contributed to the 90.6% decline for shipments to Saudi Arabia. Saudi Arabia was the second major destination for US cigarette exports in the recent decade. German and Swiss cigarette sales in Saudi Arabia soared in 2008 and early 2009. US cigarette exports to Saudi Arabia declined from 9.1 bn pieces in 2007 to 1.856 bn pieces in 2008.

Most Middle East Markets Shifting To Competitors For Cigarette Imports: US cigarette exports declined sharply to some other Middle East countries in early 2009. Shipments to UAE were down 82.6% to 55.8 mn pieces in early 2009. This followed the reduction from 1.6 bn pieces in 2007 to 352 mn pieces in 2008. South Korea, Germany, and Switzerland are major suppliers of UAE cigarette imports. Most of the cigarettes imported into UAE move through the Dubai free trade zone to Iran.

Iran had been a significant destination for 14.5 bn US cigarettes in 2004, but the trade ended after the shipment of 1.55 bn pieces in 2006. Iran is a major world importer of cigarettes, ranking after Japan, Italy, and Spain as possibly the fourth leading world importer.

Iraq had a dramatic increase in cigarette imports in 2007 and 2008. Direct US cigarette exports to Iraq began with the shipment of 70 mn pieces in 2007, skipped out in 2008, and resumed in early 2009 with the delivery of 36 mn pieces. South Korea was the leading supplier of imported cigarettes in Iraq during 2008 with the delivery of 15 mn pieces.

US cigarette exports to Kuwait tumbled 95% in January-May 2009 to 11.6 mn pieces. Kuwait had been a customer for about 1.8 bn US cigarettes annually during 2005-07. Competition from Switzerland and Turkey contributed to the decline for US cigarette exports to Kuwait.

Qatar had been the destination for 544 mn US cigarettes in 2007, but deliveries were down to 75 mn pieces in 2008. Then came the 75% drop to 14 bn pieces in early 2009.

Oman had been a market for 336 mn US cigarettes in 2007, but shipments declined to 42 mn pieces in 2008. Then no shipments were reported to Oman in early 2009.

Lebanon has remained a substantial market for US cigarettes, partly because of a transit trade for deliveries to Iraq and other Middle East countries. US cigarette exports to Lebanon declined 12.8% to 975 mn pieces in early 2009.

Israel was the second major destination for US cigarette exports in early 2009 with purchases of 173 mn pieces - a decline of 80% compared with the first five months of 2008. US cigarette exports to Israel had been 5 bn pieces in 2004 and 2.1 bn pieces in 2008. Switzerland and Poland have advanced cigarette exports to Israel.

Morocco Was A Busier Customer For US Cigarettes In Early 2009: Morocco was one of the few growth markets for US cigarette exports in early 2009 with the purchase of 300 mn pieces - a gain of 16%. In addition to a flourishing tourist trade, Morocco has become a favorite location for second homes for wealthy Arabs in recent years, with beautiful homes overlooking the Atlantic Ocean.

East Asian Cigarette Importers Shifting To Competitors: US cigarette exports to Hong Kong declined 88% in early 2009 to 14 mn pieces, compared with a peak of 2,1 bn pieces in 2005, Hong Kong smokers pay high retail prices for quality imported brands, while local manufacturers ship much of their output to customers in ASEAN countries.

Taiwan had been a customer for 1.5 bn US cigarettes in 2005. Then shipments declined 65% to 5 bn pieces in early 2009. Japan, Germany, and South Korea are important suppliers of cigarette imports into Taiwan.

US cigarette exports to Singapore rose 29% to 40 bn pieces in early 2009. Singapore had been a market for 1 bn US cigarettes in 2004, but deliveries were down to 68 mn pieces in 2008.

Some US Cigarette Exports Go To EU Port Areas: Transit traders are important in Netherlands. US cigarette exports to Netherlands dropped 64% in early to 58 mn pieces.

Traders in Antwerp were major customers for US cigarette exports in the nineties, but strict implementation of the EU duties for exterior suppliers ended that trade flow. Antwerp recently became a large distribution center for leaf tobacco entering the EU, especially for arrivals from Brazil. US cigarette exports to Belgium declined 44% to 43.7 mn pieces in early 2009.

Exports To Mexico Down Moderately In Early 2009: US cigarette exports to Mexico were down 14% to 154 mn pieces in early 2009, after reaching a peak of 512 mn pieces in 2008. Mexico recently expanded cigarette exports to the United States and Canada.

Shipments To Canada Rebounded In Early 2009: Canada was a market for 18 bn US cigarettes in early 2009, a gain of 40% over the first five months of 2009. Canada was the destination for US exports of 136 mn cigarettes in 2007, but shipments tumbled to 49 mn pieces in 2008. Some smaller US cigarette manufacturers may have a chance to expand sales in Canada.

Sales To Customers In The Caribbean Fluctuate: US cigarette exports to Netherland Antilles declined 30% to 18 bn pieces in early 2009. Bermuda expanded purchases of US cigarettes by 35% to 19.6 mn pieces in early 2009. More tourists are visiting Bermuda.

US cigarette exports to Bahamas rose 173% in early 2009 to about 2 mn pieces. Some cruise ships have stores to sell cigarettes.

US cigarette exports to Barbados were off 54.6% to 5 bn pieces in early 2009. Sales to tourists account for a significant part of cigarette sales in Barbados.

US cigarette exports to Panama declined 18% to 32 mn pieces in early 2009. Some passengers of ships passing through the Panama Canal buy cigarettes and various consumer goods in Panama stores.

Shipments To South America Fluctuate: US cigarette exports to Argentina dropped 62% to 5.6 mn pieces in early 2009. Chile was a customer for 9 bn US cigarettes in early 2009, a gain of 35% over the comparable part of 2008. The US free trade agreement with Chile may leave an opportunity for more exports of consumer goods to Chile.

Increase Reported For Shipments To Oceania: Australia was a customer for 6.4 mn US cigarettes in early 2009 - about a fourth more than during the comparable months of 2008. US cigarette exports to Australia drifted downward from 145.5 mn pieces in 2004 to 7 mn pieces in 2008.

New Zealandís cigarette output declined in recent years although imports trended upward. US cigarette exports to New Zealand rose 884% to about 2 mn pieces in early 2009. The sharp decline for cigarette output in New Zealand meant a dramatic increase for imports from Australia in 2008.



Tobacco International - September, 2009

BMJ


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