Ending Stocks Exepected To Decrease On Account of China

MUMBAI (Commoditiescontrol): Ending Stocks Exepected To Decrease On Account of China

ICAC (International Cotton Advisory Council) has released its update forecast for the year 2016/17 on 1st June 2016. ICAC expects an increase in production, consumption, imports and exports. However it expects ending stocks to be lower on account of China reducing its stocks.

World Production

Source: ICAC

World production as estimated by ICAC for 2016/17 stood at 23.01 million tons an increase by 5.50 percent from 21.81 for 2015/16. Production had fallen sharply in 2015/16 by 16.50 percent as area under cotton reduced and many countries reported yield to be below average. Situation is expected to change in 2016/17 as area as well yields are expected to improve.

India is likely to retain its leadership in production which is expected to increase by 10 percent to 6.5 million tons. However, Chinese production is estimated to reduce by 10 percent to 4.6 million tons as production costs climb and subsidies handed out are being reduced.

World Consumption

Source: ICAC

Consumption is being estimated to also increase by 0.34 percent in 2016/17 to 23.73 million tons from 23.65 million tons in 2015/16. Like production consumption fell drastically in 2015/16 by 2.79 percent as global economic growth slowed down and polyester prices remained low. Another factor for decline in consumption was the steep reduction in Chinese consumption. 2007/8 was when Chinese consumption peaked at 10.9 million tons which has been steadily falling to 7.1 million tons in 2015/16. Regardless of this reduction in consumption China continues to be the largest consumer. For 2016/17 consumption is estimated to fall further to 6.7 million tons a further drop of 5 percent.

ICAC, however, estimates that in 2016/17 mill use in other large consuming countries will offset the decrease in Chinese consumption. Indian mill use is expected to increase by 4 percent to 5.4 million tons on account of favorable textile export policies, competitive prices and well integrated downstream industries.

Mill use in Pakistan is also expected to rise by 1 percent in 2016/17 to 2.2 million tons. Vietnam mill use is forecasted to rise by 16 percent to 1.3 million tons while Bangladesh mill use is expected to increase by 10 percent to 1.2 million tons.

Imports

Source: ICAC

Imports are expected to increase to 7.45 million tons in 2016/17 from 7.37 million tons in 2015/16 an increase of 1.09 percent. 2015/16 was no different year in terms of imports as well with a reduction of 3.03 percent from 2014/15.

Chinese imports are forecasted to reduce by 12 percent in 2016/17 to 960000 tons. Chinese government with a view to restrict imports and reduce cotton reserves started the cotton auction and has sold around 588000 tons.

Rest of the world imports, on the other hand is expected to move higher by 3 percent to 6.5 million tons. Bangladesh is turning out to be the largest importer accounting for 34 percent share of world imports.

World Exports

Source: ICAC

Exports are estimated to increase to 7.45 million tons in 2016/17 from 7.37 million tons in 2015/16 an increase of 1.09 percent. 2015/16 exports dropped by 3.66 percent from 2014/15.

Increase in exports is mainly attributed to United States which is expected to increase its exports year on year by 11 percent to 2.2 million tons. Domestic production is slated to increase and there is abundance in carryover stocks.

Ending Stocks

Source: ICAC

Ending stocks are expected to decline for a second year in a row by 3.53 percent in 2016/17 to 19.66 million tons. Ending stocks had declined by 8.28 percent in 2015/16 to 20.38 million tons as compared to 22.22 million tons in 2014/15.

Reduction in ending stocks is attributed to decrease in stocks in China, however, rest of the world ending stocks are expected to increase by 3 percent to 8.8 million tons.

Table: World Cotton Supply and Distribution

WORLD COTTON SUPPLY AND DISTRIBUTION
	2014/15	2015/16	2016/17		2014/15	2015/16	2016/17
					Changes from previous month
	Million Tons				Million Tons
Production	26.12	21.81	23.01		-0.01	-0.17	0.05
Consumption	24.33	23.65	23.73		0	-0.03	-0.04
Imports	7.6	7.37	7.45		0.01	0.01	0.02
Exports	7.65	7.37	7.45		-0.05	0.01	0.02
Ending Stocks	22.22	20.38	19.66		0.13	-0.02	0.07
Cotlook A Index*	71	70	70

Source: ICAC

* The price projection for 2015/16 is based on the ending stocks/consumption ratio in the world-less-China in 2013/14 (estimate), in 2014/15 (estimate) and in 2015/16 (projection), on the ratio of Chinese net imports to world imports in 2014/15 (estimate) and 2015/16 (projection). The price projection is the mid-point of the 95% confidence interval: 67 cts/lb to 73 cts/lb.

* The price projection for 2016/17 is based on the ending stocks/consumption ratio in the world-less-China in 2014/15 (estimate), in 2015/16 (projection) and in 2016/17 (projection), on the ratio of Chinese net imports to world imports in 2015/16 (projection) and 2016/17 (projection). The price projection is the mid-point of the 95% confidence interval: 57 cts/lb to 85 cts/lb.