China's cotton index may fall further

22 Apr '15

2 min read

The China Cotton Production Prosperity Index (CCPPI) is likely to fall further this year, China Cotton Research Institute (CCRI) has predicted in its 2015-16 annual report.

The report forecasts CCPPI to fall to 180 to 190 points in 2015-16.

Reviewing the Chinese cotton industry in 2014, the report said China’s total cotton area, yield per acre and total output reduced by 7.6 per cent, 4.5 per cent and 11.8 per cent, respectively, compared to the year-ago period.

The cancellation of temporary cotton purchase and storage policy led to sharp fall in cotton prices. The annual average price a farmer received for seed cotton fell by 30.1 per cent from 8.37 yuan/kg in 2013 to 5.85 yuan/kg in 2014. However, the cotton market sentiment was better than the fall witnessed during 2008 financial crisis.

The decline in international cotton prices resulted in narrowing down the difference between domestic and global prices. In 2014, China Cotton Index (CC Index 3128B) average price was 17,169 yuan/ton, down 11.2 per cent. On the other hand, the average price on Cotlook A Index (FE) was 83.11 cents/lb, down 8.0 per cent.

On the cotton industry outlook for 2015, the report said global economic recovery continues to remain weak and cites IMF and World Bank, which downwardly revised global economic growth rate by 0.3 to 0.4 per cent in their January 2015 forecast. The weak recovery of growth will lead to a decline in CCPPI, predicts CCRI.

Chinese cotton stocks accounted for 56 per cent of global stocks at the end of February 2015, according to the US department of agriculture. The 2015-16 global oversupply of raw cotton is difficult to alleviate in the short-term, putting downward pressure on prices. As a result, annual global cotton production will show a contraction trend in 2015-16, and area under cotton will reduce in major cotton producing countries like India, China, Pakistan and the US.

However, the report suggests strengthening of science and technology to upgrade the quality and efficiency of the Chinese cotton industry. It also lays stress on introducing an innovative new service model to enhance the level of service in the cotton industry. Adjustment of product structure and quality is also among the key recommendations. (RKS)

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