Agriculture • China cotton hoard could haunt market ‘for years’
China cotton hoard could haunt market ‘for years’
The "significant uncertainty" over the cotton market created by China’s cotton stockpiling programme, which has swallowed more than 40% of the domestic harvest plus substantial imports, could last "for years".
China on Saturday completed a programme of replenishing state cotton stocks run down in the previous two seasons as the country – the world’s top consumer, importer and producer of the fibre – released supplies in an attempt to put a brake on soaring prices for its mills.
According to the China Cotton Association, the project stockpiled 14.4m bales (3.13m tonnes) of domestic cotton, equivalent to about 43% of the domestic harvest, on top of some 4.5m bales of imports.
The programme also means that China will have accounted for two-thirds of the increase in world cotton stocks in 2011-12 – creating a long-term risk to global prices, the International Cotton Advisory Committee said.
China and India
While the stockpiling "supported both domestic and international prices so far [in 2011-12], sales from the reserve could reduce Chinese imports and depress world cotton prices in the future", the committee, an intergovernmental group, said.
"The size of the Chinese national reserve creates significant uncertainty for the global cotton market for months and maybe years to come."
However, the committee also noted upward pressure on prices for now from separate state action, in India, where the government last month blocked exports after they far exceeded expectations, raising concerns for domestic supplies.
"The impact of India’s export ban on international cotton prices was limited in March.
"However, the longer the ban remains in place, the greater its upward impact on world cotton prices could be."
Traders do not expect the curbs to be removed soon, with Mike Stevens, the veteran Louisiana-based cotton analyst, saying that "it is doubtful that the export ban will be removed before summer".
The ICAC’s comments came in a monthly report in which it revised down estimates for world production in both 2011-12 and 2012-13 by a combined 484,000 tonnes (2.2m bales).
Latest China Cotton Association estimates show Chinese growers may cut sowings by 16.7%, while farmers in the US, the top exporter, are widely expected to reduce plantings by more than the 10.2% estimated by US Department of Agriculture on Friday.
However, the ICAC reduced its forecast for consumption by more, by a combined 604,000 tonnes, meaning a further upgrade to the estimate for year-end stocks.
Inventories were seen ending 2011-12 at 13.1m tonnes (60.2m bales), and next season at 14.6m tonnes (67.2m bales) – equivalent to a rich 61% of use, or seven months’ supplies.
The stocks-to-use ratio is seen as a key metric for assessing a commodity’s price potential, in showing the availability of a raw material, and therefore the extent to which buyers will need to compete for supplies.
Statistics: Posted by yoda — Tue Apr 03, 2012 9:20 am
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