MUMBAI (Commoditiescontrol) - China cotton production during marketing year (August-July) 2015-16 is projected to drop 11 percent at 341 lakh bales (170kg each), or 5.8 million tonnes compared with last year, according to U.S attaché report.
The country produced 382 lakh bales, or 6.5 million tonnes cotton in 2014-15.
On the other domestic cotton consumptions were projected to rise at 471 lakh bales, or 8 million tonnes compared with 448 lakh bales, or 7.62 million a year ago.
Cotton consumption is forecast at 471 lakh bales, or 8 million tonnes in 2015-16, up from an estimated 448 lakh bales, or 7.6 million tonnes in 2014-15. A more market-oriented domestic cotton price is expected to boost cotton use moderately. A combination of rising demand for textiles and apparel from developed and developing markets is driving the Chinese demand for cotton. Although demand growth in developed markets like the US and EU continues to recover, strengthening demand in developing countries, and especially domestic consumption, signals growth in purchases of apparel and textile products.
China is expected to hold 59 percent of world cotton stocks, an estimated record 820 lakh bales, or 13.9 million tonnes, by the end of MY2014-15. Stocks are forecast to fall slightly to 771 lakh bales, or 13.1 million tonnes by the end of 2015-16.
The majority of the stocks are held by the government and are estimated to exceed 11 million tonne, priced high ranging from RMB19,600 ($3,160)/tonne to RMB20,400 ($3,290)/tonne. This has created a widening gap between international and domestic prices and has left the government with excess stocks that it cannot sell without incurring large losses. Mills, however, continue to keep stocks at 8 low levels to minimize losses resulting from possible price fluctuations.
Cotton area in China during 2015-16 declined sharply by 15 percent at 3.7 million hectares compared with 4.32 million hectares in 2014-15.
Lower profits resulting from recent changes in China’s government cotton support policy led to fall in the planted area. While regionalized government support for cotton production is expected to continue in MY15/16 (see more in Policy Section of this report), earnings for cotton farmers are expected to continue falling. This is true particularly in the Yangtze and Yellow River regions, due to anticipated low government production support and the option of more profitable alternative crops.
As China’s government has moved away from its cotton purchasing policy in 2014-15, Chinese imports are expected to return to 2010-11 levels, or about half the level of the last three years. 2015-16 cotton imports are expected to continue to fall to 82 lakh bales, or 1.4 million tonnes from the estimated 91 lakh bales, or 1.55 million tonnes in 2014-15. The government’s control over additional import TRQ facilitates the government's ability to reduce cotton imports.
According to China’s commitments under the World Trade Organization (WTO) agreement, every year the government is obligated to allocate 894,000 tonne of cotton TRQ imports (subject to a one percent import tariff). China also has the option to allocate additional import quotas outside of the WTO TRQ. In 2013, industry sources estimated that the government issued 2.3 million tonne of additional TRQs, these include quotas subject to a variable tariff rate and quotas specifically for processing and re-export. While, the government reduced additional 2014 TRQ distributions, it still provided an estimated 1.3 million tonne in TRQs for processing trade and for mills that purchased state-reserved cotton (reportedly 3 tonne of state reserves for 1 tonne of imports).
Cotton share is expected to recover in yarn production
Most industry insiders believe cotton fiber will regain its share in yarn production when the price gap between cotton and polyester fiber continues to shrink in 2015. Cotton prices have remained almost double that of polyester fiber prices since 2013 attributed to the rapid increase in the share of polyester fiber in yarn production. In recent years, technological advancement has enhanced the quality of man-made fiber and increased its use in the manufacturing of textiles and apparel.
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(By Commoditiescontrol Bureau; +91-22-40015533)
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