July 5, 2012

 

World cotton imports likely down in the 2012-13 season

As China turns off the taps on buy-ins, world cotton imports may fall in the forthcoming 2012-13 season more than the investors have expected, with negative implications for prices.

 

China's cotton imports in the marketing year which starts next month will come in at 2.7 million tonnes (12.4 million bales), a fall of nearly one-half on this season's levels, when buy-ins were boosted by a programme of rebuilding state inventories, the International Cotton Advisory Committee said.

 

The decline will only be in part offset by an 18% rise to 4.9 million tonnes in imports by other buyers. Other major cotton importers include Bangladesh, Pakistan and Turkey.

 

Indeed, the committee downgraded by 780,000 tonnes, to 7.56 million tonnes (34.7 million bales) its forecast for world cotton imports in 2012-13, their lowest in at least four years.

 

A "small rebound", spurred by economic revival, in mill use of the fibre "will boost cotton imports, but not enough to offset the expected drop in demand by China, which now holds large stocks", the intergovernmental group said.

 

The decline in imports is larger than that expected by the USDA, whose data are closely watched, and which forecasts a 14.8% drop to 37.0 million bales in world cotton imports in 2012-13.

 

And the ICAC flagged "increased competition" among exporters "for a reduced export pie" - a dynamic inferring price weakness, as market power accumulates with buyers rather than sellers. Indeed, the committee also highlighted the pressure on values from large inventories built up as production exceeds consumption for a third successive season.

 

"The projected accumulation of cotton stocks will weigh on international cotton prices in 2012-13," the Washington-based organisation said.

The comments come amid hopes that cotton prices may, for now, stabilise at levels some two-thirds below the record high in March last year.

 

New York's December contract closed at US$0.726 a pound, up 0.8% on the day. At Texas A&M University, cotton marketing economist John Robinson forecast US$0.60-0.80 a pound as "the likely trading range of December futures range going forward"

 

Mike Stevens, the Louisiana-based traders, said that "most commercial observers are comfortable with a US$0.65-0.75 a pound trading range", with the market appearing already to "have a low in place" last week, when the contract fell below US40.68 a pound.

Goldman Sachs said it expected a cut on Friday (June 29) to 12.6 million acres in the USDA forecast for domestic cotton sowings "to support cotton prices in the near-term".