Global glut in cotton to persist

Fall in sowing area among major producers to reduce production by 8.5%

Cotton traders are staring at excess stock, as supplies from the world’s biggest growing regions such as India and the US are set to rise amid declining demand from China, a major importer of the commodity.

The fall in Chinese demand has been so sharp that it will result in less planting of the crop in FY16. However, there will still be a glut in the market.

 

In 2011-12, Chinese imports doubled from the previous season to 5.3 million tonnes. This is expected to be 1.6 million tonnes in 2014-15. According to an International Cotton Advisory Committee (ICAC) report, cotton planting in 2015-16 is expected be much lower and the global crop could be 8.5 per cent lower at 23.9 million tonnes.

However, global consumption is expected to increase 2.33 per cent to 24.93 million tonnes.

 

In a recent analysis, Rabo Bank said world consumption would exceed production by six million bales (of 170 kg each). “Prices are expected to be 72 US cents / pound in September 2015 quarter and new crop price through following December quarter to be 72 US cents/pound.”

In India, the scenario is not very different. While the Cotton Association of India has cut its crop forecast for cotton season 2014-15 to 6.5 million tonnes (38.2 million bales) from last year’s 6.9 million tonnes. ICAC forecasts India’s crop in 2015-16 to further fall to 6.4 million tonnes.

According to ICAC, world cotton area will decline seven per cent to 31.3 million hectares in 2015/16 owing to low prices in 2014/15. World cotton production is projected down nine per cent to 23.9 million tonnes. China is expected to see 12 per cent decrease in area to 3.8 million hectares. Production in China could fall to 5.4 million tonnes in 2015/16. Last year, the Chinese government ended its three year-long programme to stockpile raw cotton to support local growers and, instead, started offloading its reserve stock in the local market.

Cotton area in the US is forecast to fall 15 per cent to 3.3 million hectares due to low international prices and adverse weather conditions. Assuming a yield of 912 kg per hectare, production in the US is projected down 14 per cent to three million tonnes.

However, the estimated 2.27 million-tonne fall in global cotton crop next year will not reduce cotton glut.

According to market sources, India is looking to expand its export market by increasing focus on Bangladesh, Vietnam and Indonesia. There has been an increase in demand for cotton from the local spinning mills in these countries, which export yarns to China.

ICAC also endorses the view saying, “Bangladesh, Vietnam and Indonesia are expected to be the three largest importers outside of China in 2015/16 due to the continued growth in their spinning sectors that rely primarily on imported cotton. Bangladesh’s imports are forecast at just under one million tonnes in 2014/15 and are expected to remain stable in 2015/16. Vietnam’s imports are projected up six per cent to 927,000 tonnes in 2015/16 and Indonesia’s imports up four per cent to nearly 800,000 tonnes.”

A Cotton Association of India official said: “Cotton Corporation of India, which is sitting on a huge stock, should start selling it now. Otherwise, when new crop comes in, farmers will not get proper realisations.”