China's policy to influence 2013 cotton outlook - NCC

Dr. Gary Adams, the NCC’s vice president Economics & Policy Analysis, told delegates at the NCC’s 75th Annual Meeting in Memphis that, recent data on fiber market share clearly demonstrates the many challenges in terms of competition from MMF that the cotton industry faces in 2013.

According to Adams, “Measured on the basis of pounds of cotton fiber, the 2012 U.S. retail cotton market fell to the lowest level since 1996, amid a 4th consecutive year of declining market share.” Calendar 2012 retail cotton consumption is estimated to be the equivalent of 17.0 million bales of fiber.

In part, the loss in market share is the result of cotton prices that have been uncompetitive with polyester. As raw fiber prices have moderated in recent months, cotton textile products also have become more competitive with manmade fiber products. Assuming these relative prices continue at levels comparable to current values, market share is projected to stabilize, leading to a modest growth in cotton net domestic consumption for 2013.

“However, cotton is unlikely to reclaim market share unless cotton prices trade at levels below polyester,” Adams said.

The NCC sees 2013 world mill use of 108.7 million bales, an increase of 2.5 percent from 2012.  More specifically, international mill demand outside of China is estimated to increase by 5.7 percent for the 2013 crop year, with more than half of the growth being accounted for by India and Pakistan.

“This demonstrates that a shift is underway in terms of where cotton is spun into yarn,” Adams said.

Continued growth in mill use is being supported by the relatively stable price pattern of recent months, more competitive prices when compared to polyester, and more favorable spreads between yarn values and fiber prices.

China’s current policy is another factor lending support to mill use in other countries. By purchasing their domestic production at prices 40 to 50 cents above world prices, China is insuring that their internal prices are well above world prices, and causing their cotton spinning to be uncompetitive.

For China, differentials between yarn values and fiber prices are only one-third of those in India and Pakistan. Fabric manufacturers in China are increasingly looking to fill their yarn demand with imported product.

China’s current policy, while supporting prices received by farmers, acts as a tax on textile mills and has furthered the shift to manmade fiber. Over the 2009 through 2012 marketing years, mill use in China declined by almost 15 million bales. Over that same period, China’s use of man-made fiber grew by 40 million bales, dropping cotton’s market share from 30 percent to 19 percent.

Continuing to operate the program in a manner similar to the past year will maintain pressure on China’s cotton spinning mills. As a result, China’s mill use for the 2013 marketing year is expected to decline further, falling to 34.3 million bales.