Chinas domestic cotton prices continued to fall in August

China's domestic cotton prices continued to fall in August

Growth in global cotton consumption is expected to be limited in 2015/16, as international prices remain higher than those of competing manmade fibres such as polyester.

While domestic cotton prices in China, the world’s largest consumer of cotton, continued to fall in August 2015, polyester prices have also fallen, maintaining the spread between the two, according to the International Cotton Advisory Committee (ICAC). 

The inter-governmental group notes that domestic prices for cotton in China averaged 95 cents/lb in August, narrowing the gap with international cotton prices.

It adds that the lack of competitive pricing for cotton, coupled with turmoil in its stock markets, has curtailed growth in China’s cotton spinning sector. Consumption is projected to reach around 7.7m tons, far below the peak of 10m tons in the mid-2000s.

In recent years, mill use has shifted to lower cost countries, primarily in Asia, as cotton spinning has become less competitive in China.

World cotton consumption is forecast to grow by 2% and reach 25m tons in 2015/16, which remains below the volume consumed just before the global economic recession.

In addition to China, India and Pakistan are the largest consumers of cotton and these three countries alone account for 64% of world cotton consumption. Consumption in India and Pakistan is anticipated to increase by 3%, to 5.6m tons and 2.6m tons respectively.

The ICAC also projects that world cotton area will be down 7% in 2015/16 to just under 31m hectares due to significantly lower prices in 2014/15. The world average yield is expected to decrease by 3% to 764 kg/ha, with world production down 10% to 23.7m tons.

Limited growth in demand will not make a large impact on world ending stocks, it says, which are expected to be reduced by 6%, or just over 1m tons, to 20.4m tons.

Furthermore, world cotton imports are projected to remain stable in 2015/16 at 7.6m tons. China’s imports are forecast to decrease by 12% to 1.6m tons, marking the fifth season of decline after peaking at 5.3m tons in 2011/12.

Imports outside of China would offset China’s decline, rising by 3% to 6m tons with gains in the next three largest importers. While exports from the US are projected to decrease by 9%, due largely to reduced production, it will remain the world’s largest cotton exporter. After falling 51% in 2014/15, India’s exports may recover by 21% to 1.2m tons in 2015/16.