Business

Stagnant Chinese Demand May Nosedive Cotton Prices, Boon For Global Importers

China in the current crop year 2016-17 is slated to maintain its demand for import of raw cotton at previous year’s levels thereby increasing the share of cotton available in the open market for other importing countries like Bangladesh, Vietnam and Turkey.

Though the Chinese crop is expected to be only 21 million bales and is a historic low, it will be offset by the sale of reserve cotton from March 2017 on and thereby stagnate the demand factor from China. Assuming stability in monthly consumption, first five months of China's 35.0 million bale mill-use forecast suggest that 14.6 million bales are needed during this period. Since the harvest easily exceeds this demand, it could be expected that supply-related price pressure will ease as more of the crop is harvested and made available to mills.

In the absence of enhanced Chinese imports and in the wake of the current scenario where Australia has reached a bumper harvest of 4.0 million bales of cotton, it would be an ideal scenario for countries importing raw cotton. It will also be a good time for the importers to bargain hard over the pricing of the fiber.

In addition, raw cotton demand by India and Pakistan from China is also expected to drop in wake of better crop yields this year. In Pakistan alone 1.3 million more bales of cotton are expected this year. India too is having a bumper crop with an increase of 100,000 bales compared to the previous year.

In the final analysis of demand supply, the importers would be at a heavy advantage this year due to surplus cotton stock world over both for consumption and exports.