WASHINGTON(Commodity Online): Cotton prices have weakened sharply in recent weeks in anticipation of second consecutive season of increase in global stocks, according to International Cotton Advisory Committee (ICAC).
The ICAC Secretariat expects stocks to jump by 43% in 2011/12 to 13.3 million tons, and then to expand by another 9% in 2012/13 to 14.5 million tons.
By the end of July 2013, global cotton stocks would represent 61% of global consumption, the highest stocks-to use ratio reached since 1998/99. Other factors participating in the recent price decrease include the arrival of rains in Texas, new uncertainties regarding the EU economy and the resulting strengthening of the U.S. dollar.
World cotton production is forecast down by 7% in 2012/13 to 25.1 million tons following the plunge in cotton prices in 2011/12. Global cotton mill use is projected to increase by 3% to 23.9 million tons in 2012/13, driven by improving economic growth and lower cotton prices. Global trade is expected to decline by 8% to 8.1 million tons. Chinese imports could fall from a record of 4.6 million tons to 3.3 million tons, whereas imports by the rest of the world could increase by 15% to 4.8 million tons, boosted by lower cotton prices and increased consumption In 2011/12, three-fourths of the projected increase in global stocks is taking place in China, mostly within the national reserve. A portion of this reserve might be auctioned before the arrival of the new crop, to rotate stocks.
The Chinese government already announced a slightly higher minimum support price for 2012/13 and is
expected to buy part of the new cotton crop. This suggests that the size of the Chinese national cotton reserve may increase further in 2012/13.
The projected accumulation of global cotton stocks will weigh on international cotton prices in 2012/13, andprice volatility may increase due to the uncertainty related to the Chinese national reserve.
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