Chinese Cotton Consumption, Global Cotton Production, Global Market, Fibre2fashion

Cotton markets have witnessed drastic fluctuations during 2008, with prices on both extremes; touching historic heights and later on tumble down by almost 40% by the end of the year. Weak US dollar affected the cotton prices to a considerable extent. Economic crisis that is sending shivers; worldwide has added woes to the cotton prices. Hindrances in availing credit and issues of cash liquidity have caused difficulty in operations. Declining textile productions in major countries like India, China, and Pakistan is building pressure in yarn prices. A drastic decline in the raw cotton consumption due to a decline in the sales figures of major consumers from the western centre is also raising concerns.

Decline in the stock and housing markets have made the consumers to save a greater share of their discretionary income to keep up with the loss due to fall in their assets value. Losses continue to increase in the financial markets causing job losses thereby ultimately affecting the level of consumer confidence. All these factors add a persistent weight on the cotton prices. Feeble demand resulted in the further loosening of the global stocks highlighting the lack of price support from fundamentals. The USDA cotton outlook anticipates that a fundamental tightening may occur in 2009/10.

More land area is shifted to alternative crops as the demand for cotton continues to nosedive. The two globally largest textile producing nations, India and China are witnessing a sharp decline in the demand for their output. Hence these two biggest cotton producing countries in the world are likely to restrict their land area that they devote to cotton.

Modest gains were recorded for cotton prices during January, 2009 with prices touching the highest in the previous three months. But this trend only had a short life due to weak fundamentals and weak demand in the international market especially in China.

Declining cotton consumption in China:

China is currently the largest consumer of cotton. Cotton sector in China is adequately protected by its Government through support prices, export subsidies, import tariffs, and public stockholdings. The Governments reference price of cotton is set typically above the global prices. Presently, the ongoing global turmoil, and a severe weakness of the countrys textile sector has hacked the countrys demand, and consumption of cotton. Decline in the cotton consumption of China is estimated to be around 24%.

Global cotton production is expected to decline by approximately 8%, and consumption is expected to fall by 6% during the current year. Chinas cotton consumption and production is also expected to decline to a sizeable extent. India and China being the major contributors to the world cotton trade, the current years cotton consumption and imports are further expected to decline. Major textile mills and apparel exporters in China are struggling with demands nose diving, and a resulting pressure from the unpaid bank loans. Many of them have downsized their operations by lay-offs, and still some of them have pulled down their shutters.

Despite the bleak demand, cotton has its own circle of buyers. Economist state that with a positive expectation of the economic recovery during the second half of 2009, global consumption is optimistically anticipated to increase by 2.1%. During the said period, accumulated stocks from countries like India and China would be released. But, still there remains an uncertainty from the demand side, as to how quick and strong the economic recovery would be.

References: