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ICAC trims cotton price hopes - but flags jump in China's imports from US

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The International Cotton Advisory Committee trimmed forecasts for cotton prices as it cut, again, demand expectations – in a briefing which highlighted West Africa as a loser of January’s China-US trade deal.

 

The intergovernmental group lowered by 1 cent to 71 cents a pound its estimate for average cotton prices, as measured by the Cotlook A index, in 2019-20, as ends this month.

 

For next season, the forecast was also reduced by 1 cent, to 58 cents a pound, a 14-year low.

 

‘Additional challenge’

The reductions came as the ICAC cut by a further 530,000 tonnes, to 22.54m tonnes, its estimate for world cotton consumption this season – taking the figure even further below the 26.2m tonnes expected in January, before Covid-19 spread worldwide.

 

“Covid-19 has presented an additional challenge to the cotton sector that had already been under pressure from long term decline in use and declining prices since 2018,” the committee said.

 

The downgrade reflected largely a cut to expectations for Indian consumption, cut by 430,000 tonnes to 4.32m tonnes.

 

For 2020-21 the demand estimate was downgraded by 440,000 tonnes to 23.31m tonnes, again down largely to reduced expectations for India’s needs.

 

‘World’s largest importer’

Nonetheless, the committee held at 7.25m tonnes its forecast for China’s cotton consumption this season (and at 7.80m tonnes the estimate for 2020-21).

 

Indeed, it underlined that China was expected “to remain the world’s largest importer of cotton lint” even with imports seen falling by 12% to 1.84m tonnes this season, from 2.10m tonnes in 2018-19, reflecting the “slowdown in manufacturing during the Covid-19 containment”.

 

China’s imports for the first nine month of 2019-20, to April, a period including peak lockdowns had in fact shown an even steeper decline, of 22% to 1.25m tonnes.

 

However, this dip had proven uneven by origin, with Brazilian and US exports bucking the overall downward trend.

 

Brazil, US in demand

China’s imports from the US soared 29% to 277,000 tonnes over the nine months, with volumes “increased following the implementation of the phase one trade agreement” between the two countries, as signed in January.

 

“Imports to China from the US began increasing through March and April following the implementation” of the deal, in February.

 

Imports from Brazil – which Chinese buyers largely turned to while country was still in its trade war with the US - have also gained, by 30% to 527,000 tonnes.

 

“Imports from Brazil have shown resiliency as the trade patterns that shifted during US-China trade tensions appear to have remained in place.”

 

West Africa stockbuild

By contrast, imports from Australia for the period slumped by 60% to 185,000 tonnes, also reflecting a drought-hit harvest, and from India by 59% to 106,000 tonnes, although the ICAC singled out for comment a drop to 53,000 tonnes in Chinese imports from West Africa’s cotton belt, encompassing the likes of Benin, Chad, Mali and Togo.

 

“Imports from West African countries to China have fallen by 48% over the August to April period with limited opportunities to export under reduced demand from Covid-19 containment and improving trade relations between the US and China.”

 

With the region’s total exports now seen falling to 1.12m tonnes, below output of 1.30m tonnes, “stock levels would increase if quantities of the 2019-20 crop are not exported.”

 

The committee forecast West African cotton stocks, as compared with demand, swelling to 62.8% as of the end of 2020-21, from 54.4% at the end of this season, and 38.6% at the close of 2018-19.

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