July 10, 2012

India's cotton production, after two years of record levels, is expected to decline by seven% to 5.4 million tonnes this financial year, compared with 5.9 million tonnes in 2011-12.

Lower cotton prices will likely drive cotton cultivation area down by 10% to 11 million hectares. However, cotton mill use in India is expected to rebound by seven% to 4.7 million tonnes in 2012-13 after a drop of 4% last financial year.

Townsend said the projected reduction in production in India in the current financial year will take place in the context of a similar decline in the world production (down eight% to 24.9 million tonnes), driven by a decline in international cotton prices.

Meanwhile, ICAC, which is an association of cotton producing and consuming countries, in its projection, said global cotton trade was expected to drop by 18% to 7.6 million tonnes due to a projected slowdown in Chinese purchases.

The continued accumulation of global stocks and the decline in the volume of international trade will weigh on cotton prices. After a 20% jump to 9.2 million tonnes in 2011-12, the volume of cotton traded internationally is expected to drop 18% to 7.6 million tonnes in 2012-13. Global cotton production is forecast at 24.9 million tonnes for the current financial year, down eight% from last season. The decline in prices during 2011-12 has driven cotton plantings down this year in many countries.

"High and volatile prices and a slowing global economy drove demand for cotton yarn down. Increased cotton trade in 2011-12 is due to a near doubling of shipments to China to 5.1 million tonnes," ICAC said.

"Chinese mills have turned to imports to compensate for the shortage of domestic cotton caused by the rebuilding of the national reserve. In addition, large quantities of cotton were imported by the Chinese government specifically to help rebuild that national reserve. In contrast, cotton deliveries to other countries than China have fallen by 18% in 2011-12," it added.

According to ICAC, a small rebound in global cotton mill use is projected in 2012-13, on the basis of lower prices and a more robust global economy. This improved demand will boost cotton imports, but not enough to offset the expected drop in demand by China, which now holds large stocks. Imports by China are projected to fall by almost half to 2.7 million tonnes in 2012-13, whereas imports by the rest of the world could rebound by 18% to 4.9 million tonnes.

On the other hand, exports from the US and Francophone Africa are expected to increase in 2012-13, due to increased production. However, most other large exporting countries will experience a decline in their shipments due to a smaller crop and increased competition for a reduced export pie.