The Chinese government’s policy of supporting the country’s cotton growers with minimum pricing is making its mills increasingly uncompetitive, according to industry organisation Cotton Inc.

However, the policy could be a boon to other producing countries, with India and Pakistan benefiting from record Chinese imports of cotton and yarn in July and August.

Meanwhile, the International Cotton Advisory Committee (ICAC) said recent pricing trends – up in China and down internationally – could be an indication of price directions for the months ahead.

The main influences, it added, were the Chinese minimum support price policy, and the pressure in the rest of the world of accumulating stocks, combined with weak demand.

ICAC said it now expected Chinese imports of cotton to drop sharply – by more than half – in 2012/13, despite significant purchases by the Chinese government in 2011/12 to rebuilt its national reserve.

“However, it may not be able to provide such support to international prices in 2012/13,” the organisation said.

“The Chinese national reserve had already reached an estimated 4.6m tons at the end of August 2012, and it could grow further this season due to the government’s commitment to support domestic prices.”

Meanwhile, prices in the rest of the world could fall further, despite a likely 6% cut in production outside China – impacted by reduced shipments to China and a forecast 16% increase in rest-of-the-world stocks to 9m tons in 2012/13.

Looking further ahead, ICAC expects international cotton prices to “eventually” receive some support from expected lower plantings in the southern hemisphere at the end of 2012, and in the northern hemisphere in 2013/14.

The global stock situation is not helped by a projected 11% rise in the 2012 US cotton crop to 17.3m bales, according to the US Department of Agriculture’s October Crop Production report.

The USDA added that the country’s cotton demand estimate for 2012/13 had dropped slightly, impacted by higher overseas production levels and reduced imports, especially by China.

That led the USDA to revise US ending stocks upwards in October to 5.6m bales, up two-thirds on the final 2011/12 stock ending estimate and the highest figure in four years.

The USDA also said that it expected global production to outstrip consumption for the third year running in 2012/13, leading to a 14% increase in global ending stocks to 79.1m bales.

And it said world 2012/13 cotton imports were likely to drop 18% to 36.5m bales, largely thanks to a sharp decline in Chinese imports – forecast down 55% to 11m bales.

That slump in demand, it added, would only be partially offset by increased demand from other major importers, including Bangladesh, Indonesia, Pakistan and Turkey.