Prices hit a record high
In Jun. 2010, China Cotton Index for 328-Grade reached CNY 17,894 a ton, adding 19.84% over Jan. 2010. Same happened to the international cotton prices. The Cotlook A index in Jun. reached to 93.04 cents per pound, up 51.53 points from last year. The both of them hit a record high.
Industry recovery pushing up cotton price
Cotton prices extended gains over the past few months, as incremental domestic demand was outpacing incremental supply. China's cotton textile industry saw a continue increase in cotton yarn production in the first half of 2010. Looking further, from January to June, output of cotton yarn and cotton blend yarn reached 9.7192 million and 1.2414 million tons, up 15.84% and 13.71% respectively from the previous year's period.
There are other factors pushing up cotton prices. Cotton output in China totaled 6.40 million tons in 2009/10, down 14.67% from a year earlier. The harvest was approaching its end, but some growers and traders were still reluctant to sell due to expectations that prices will rise further.
The supply is not only from domestic cotton mills but also from outside. High import costs may push up cotton price also. China??s State Council has upped the first half 2010 import quota to 3.562 million tons. As we known, imports of cotton under quotas are subject to 1% customs duty rate. Imports without quotas are subject to 5~40% sliding duties. Goods delivered for cotton exports surged 109.84 per cent to 1.5451 million tons in the first six months from the year-earlier period. Goods delivered for cotton exports in Jun. increased by 5.1 per cent to 177,200 tons. Export price surged 47% to $1,834/ton in Jun.
Prices began easing
China Cotton Index for 328-grade began easing since Jul. 12 as the slack season for yarn sales coming up and the releasing of government reserved cotton. On Aug. 6, China Cotton Index for 328-Grade was CNY 18178 a ton, 241 less than the price on Jul. 9. China will auction 600,000 metric tons of cotton from state reserves from Aug. 10 to satisfy demand and stabilize the market, the China Cotton Association said.
Global production rebounds on price rise
Global cotton production is forecast at 25.2 million tons in 2010/11, up by 15% from 2009/10. Farmers have reacted to the jump in cotton prices in 2009/10 by significantly expanding their plantings in 2010, according to International Cotton Advisory Committee. The average yield is expected to improve slightly to 766 kg/ha. The rebound in production is driven by the United States, where output is anticipated to jump by over 50% to 4.1 million tons. Larger crops are also expected in India, Pakistan, China, Brazil, Uzbekistan, Turkey, Australia, the CFA Zone, and many other countries.
Output in India and Pakistan is forecast to rise 6.4 percent and 6.3 percent to 5.4 and 2.2 million tons, respectively, according to the USDA. People are also watching if India and Pakistan, the world's second- and fourth-largest producers, will be able to deliver their estimated output.
World cotton mill use is projected to continue to recover in 2010/11, growing by 2% to 24.9 million tons, pushed by continued improvement in global economic growth. China and India are expected to account for 80% of the increase in world cotton mill use in 2010/11. Global imports are expected to continue to recover in 2010/11, rising by 4% to 8 million tons. This increase will be driven by Chinese imports, forecast 22% larger at 2.9 million tons. U.S. exports are projected up by 19% to 3.2 million tons in 2010/11, whereas Indian exports could decline to 1.2 million tons due to a reduced exportable surplus. As world cotton production is expected to exceed mill use in 2010/11, world ending stocks are forecast to rise by 3% to 9.8 million tons. The global stocks-to-use ratio is expected to remain stable at 39%, much lower than the recent five-year average of 49% (2004/05 to 2008/09).
The ICAC Price Model forecasts a 2010/11 season-average Cotlook A Index of 85 cents per pound. The 95% confidence interval extends from 71 to 102 cents per pound. This forecast implies a 9% increase with respect to the 2009/10 average. However, caution must be exercised since all commodity markets are subject to great uncertainty.
Outlook
According to data collected from 11,773 statistics-worthy Chinese cotton spinning enterprises surveyed by National Bureau of Statistics of China, from January to May 2010, main business income of the industry increased by 29.2 per cent to 447.13 billion yuan; total profits jumped 75 per cent to 20.66 billion yuan; goods delivered surged 29.2 per cent to 36.04 billion yuan. During Jan.-May period, enterprises in cotton spinning sector saw their ratio of profit growth edged up by 4.62% year on year, 0.2% higher than the average level of the whole textile industry. The growth was attributed to an increase in domestic sales and market confidence.
However, cotton prices have been increasing at an unprecedented level in China. Prices have been going up internationally as well. Cotton spinning mills face a challenging environment in high purchasing prices with stockpiles falling where it may be difficult to pass higher material costs on to higher yarn prices
