The International Cotton Advisory Committee underlined the threat to hopes for cotton price stability posed by China’s selldown of its huge inventories, heralding 2015-16 as “another season of uncertainty”.
The intergovernmental group restated a forecast for cotton prices, as measured by the Cotlook A index of physical values, averaging 72 cents a pound in 2015-16, which starts in August.
“International cotton prices may remain stable,” the committee said, with the price for this season looking like averaging 71 cents a pound.
However, the ICAC added that the price outlook will “depend in part on changes in world cotton stocks”, which will in turn rely to a great extent on the dynamics of inventories in China, where the government stockpile is estimated at 11.3m tonnes, more than half the world total.
China last month announced that it was planning “to start selling its stockpiles… at a price close to the current market price in the hopes of keeping the market stable”, the ICAC said.
However, it is “uncertain how successfully China will be able to sell off its excess cotton stock without destabilising the market”.
Chinese authorities on Tuesday revealed that they will sell 1m tonnes of cotton from 2011 and 2012 crops, and 200,000 tonnes of cotton, an announcement which initially sent prices tumbling, although values recovered after the US revealed a lower-than-expected estimate for plantings.
In China, Zhengzhou cotton futures for January, the best-traded contract, settled at 13,275 yuan a tonne on Thursday, down 5 yuan on the day, but a little above Monday’s close at 13,250 yuan a tonne.
China has said it will sell its cotton at a minimum of 13,200 yuan a tonne, with some sold with a floor price of 15,500 yuan.
China vs India
The comments came as the ICAC restated an expectation that China, historically the world’s top cotton producer, will be a distant second place to India in 2015-16.
Chinese cotton sowings were pegged at 3.8m hectares, a drop of 12% year on year, reflecting the reform of the generous subsidy regime which led to the build-up in inventories.
China’s harvest will tumble by 16% to 5.4m tonnes.
Meanwhile, for India, the better-than-expected start to the monsoon prompted the ICAC to propose that “yields may improve to 547 kilogrammes per hectare, limiting the decrease in production to 6.4m tonnes”.
US output was pegged at 3.1m tonnes, a drop of 12% year on year, but an upgrade of 100,000 tonnes on last month’s forecast.