International cotton prices jump as stocks tighten

“Significantly lower crops in the five largest producing countries and higher than expected demand led to tighter stocks at the end of 2015-16, at which time world ending stocks were estimated to have fallen by 12 per cent to 19.7 million tons,” ICAC said.

While stocks outside of China decreased by 9 per cent, to 8.4 million tons, which is the lowest level since 2010-11, when they reached 8.3 million tons, China's national stocks have reduced by 12 per cent to 11.3 million tons due to strong domestic demand.

Demand for cotton from the Chinese government's reserve has been strong since auctions started in May 2016. On average, 26,000 tons of cotton has been offered daily, nearly all of which has been sold. Total sales through the end of July are around 1.6 million tons, reducing China's national reserve to 9.4 million tons, ICAC said.

In 2015-16, China's cotton production declined by 26 per cent to 4.8 million tons, but cotton mill use in China decreased by 2 per cent to 7.3 million tons, exceeding production by 2.5 million tons. Import quotas limited the total volume of imports to 940,000 tons in 2015-16, and sales from the reserve were used to meet the excess demand.

World cotton demand declined by 1 per cent to 23.9 million tons in 2015-16, but world production decreased by 18 per cent to 21.3 million tons, contributing to the tight supply situation at the end of the season.

Declines in production occurred in the top five producers, which account for 76 per cent of world output. India, the world's largest cotton producer, saw its production fall by 11 per cent to 5.7 million tons in 2015-16. As noted above, China's production declined to 4.8 million tons, while output in the US decreased by 21 per cent to 2.8 million tons. Yields in Pakistan fell to their lowest level since 1998-99, resulting in a 34 per cent drop in production to 1.5 million tons. Output in Brazil declined by 11 per cent, to 1.4 million tons.

In 2016-17, world production is predicted to increase by 8 per cent, to 22.9 million tons. Gains in India, the US, Pakistan and Brazil will offset the loss of production in China in 2016-17. Better cotton prices during the growing season will encourage farmers to use more inputs, such as fertiliser, in order to improve yields and take advantage of higher prices. In addition, weather has generally been more favourable this summer than in 2015.

Although world production is expected to increase in 2016-17, consumption is projected to remain stable at 23.9 million tons. Mill use in China, the world's largest consumer, is forecast to decrease by 3 per cent, to 7.1 million tons, due to high cotton prices, low polyester prices, and limited imports. However, mill use may stage a modest recovery in India and Pakistan, where consumption is projected to increase by 2 per cent, to 5.3 million tons, and by 1 per cent, to 2.2 million tons, respectively.

World imports are forecast to increase by 4 per cent, to 7.5 million tons, as mill use continues to grow in countries that rely on imports. Shipments received by the world's two largest importers, Vietnam and Bangladesh, are expected to rise by 19 per cent, to 1.26 million tons, and 18 per cent, to 1.21 million tons, respectively. (RKS)

Fibre2Fashion News Desk – India