Cotton price hopes received a double fillip, as both Abares and the International Cotton Advisory Committee lifted their forecasts, as they underlined Chinese and Pakistani import needs.
The International Cotton Advisory Committee raised by 2.2 cents per pound to 75.7 cents per pound its forecast for average 2020-21 cotton prices, as measured by the Cotlook A index of physical values.
The upgrade came as the intergovernmental group ditched expectations of a marginal rise in world cotton stocks over the season, which ends in July, instead seeing a drawdown of some 300,000 tonnes, to 21.1m tonnes.
The revision reflected an upgrade of 300,000 tonnes to 24.5m tonnes in the estimate for world demand.
While consumption at this level “isn’t nearly enough to offset the losses caused by the pandemic, it’s expected to outpace production, thus drawing stocks down by the end of the season”, the committee said, highlighting too raised imports by China and Pakistan.
Chinese imports are being incentivised by “the price gap between domestic and foreign cotton”, while Pakistan’s needs are being enhanced by “a decrease in domestic production”.
Separately, Abares too lifted its forecast for Cotlook A prices in 2020-21, by 7.0 cents a pound to 80.0 cents a pound, as it too switched to predicting a world production deficit.
In cutting its forecast for world output by 400,000 tonnes to 24.3m tonnes, while lifting by 200,000 tonnes to 24.5m tonnes its consumption estimate, Abares put a drawdown of 100,000 tonnes on its balance sheet, instead of the stockbuild previously expected.
Besides noting “below-average yields” in the US, the bureau highlighted the “strong rise” in imports by China and Pakistan, seeing it as a factor that “has supported international cotton prices.
“Both countries are importing to fill deficits in useable supply,” Abares said, viewing Pakistan’s as stemming from a second successive poor harvest, but for China highlighting the role of the bans by some Western nations on imports from the country’s Xinjiang region, over claims of forced labour.
With Xinjiang producing about 90% of Chinese cotton, “these restrictions put pressure on China’s textile industry to source cotton from other nations such as the United States and Brazil”, raising imports to 1.1m tonnes in the August-to-December period, from 1.6m tonnes in the whole of 2019-20.
Outlook for next season
Abares added that China’s “strong import demand is expected to continue throughout 2021, supporting world cotton prices despite high global stocks”.
“Recovering global demand more generally” was seen supporting values too.
However, gains are seen limited by “high stock levels and competition from synthetics”, the bureau added, forecasting a rise of 3 cents a pound in Cotlook A values in 2021-22, to 83.0 cents a pound.
The forecast factors in an expectation of production recovering to 25.0m tonnes, but remaining behind consumption, seen growing to 25.6m tonnes, fostering a decline in stock to 20.6m tonnes.