October 3, 2012

 

 

Due to the impact of smaller Chinese imports and the delay until the market will receive support from lower sowings, a declining trend in China's cotton prices is set to continue.

 

This is according to the International Cotton Advisory Committee (ICAC).

 

China, the world's biggest cotton producer, consumer and importer, will keep domestic values of the fibre steady, thanks to a farm support programme which sets a floor price to growers of CNY20,400 (US$3,231) per tonne.

However, China's reduced requirement for imports, after a stockpiling programme last season, will continue to undermine international prices, the ICAC said.

 

The committee pegged China's imports in 2012-13 at 2.5 million tonnes, a slump of more than one-half, and below the USDA estimate of 2.61 million tonnes.

 

The drop in Chinese imports will fuel a rise in inventories in other countries, where inventories are expected to grow by 16% to nine million tonnes, reducing the pressure on buyers to compete for supplies, and so signalling weak values.

 

"With this projected fall in Chinese imports, the outlook in the rest of the world is conducive to lower international prices in 2012-13," the committee, an intergovernmental group, said.

 

"In September, international cotton prices declined slightly, whereas Chinese cotton prices increased a little bit. This might indicate price directions over the next few months."

 

Outside China, "the pressure of accumulating stocks, combined with weak demand, could drive cotton prices down".

 

Prices will "eventually receive some support" from the impact of weak values in persuading farmers to switch to other crops, so potentially moving towards eroding record world inventories.

 

The committee forecast "lower plantings", although this would not kick in to the big northern hemisphere producing countries, including top exporters the US and India, until 2013-14.

 

Cotton for December recouped early losses to close up 0.9% at US$0.7085 a pound in New York. The average price so far in 2012-13 of the Cotlook A index of physical prices, which in including shipping tend to be higher than futures, is US$0.84 a pound, compared with US$1.00 a pound last season and US$1.64 a pound in 2010-11, according to the ICAC.