Trade Resources Industry Views World Cotton Trades in The 2013/14 Season Is as Challenging as It Was in The 2012/13

World Cotton Trades in The 2013/14 Season Is as Challenging as It Was in The 2012/13

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World cotton trades in the 2013/14 season may be as challenging as it was in the 2012/13. The scenario is a reaction coming from the international demand, except for China, decreases of the worldwide supply, record ending stocks and possible higher availability of governmental stocks from China. Therefore, these aspects might push up or decrease quotes during the 2013/14 crop.

Most recent USDA projections for the 2013/14 season indicate that world cotton stocks may increase for the fourth consecutive crop, hitting the highest historical volume. World stocks are forecasted at roughly 21 million tons in 2013/14, 8.2% more than those in the 2012/13 and the double of the amount registered in 2009/10.

Significant increases of world stocks of cotton in the last crops are a result of the supply increase higher than demand’s. On one hand, prices higher than historical averages favored the production increase, but, on the other hand, limited the industrial use – players from the industry started to search cheaper products, such as artificial fibers.

The increase of global stocks has been occurring more intensively in China, where governmental policies have been underpinning quotes through direct purchases. At the end of the 2011/12 season, China’s stocks were 6.8 million tons, equivalent to 41% of world stocks. For 2013/14, the most recent USDA projection indicates that stocks in China might hit 12.5 million tons, or circa 60% of the total in the world.

The Chinese government is trying to sell its stocks, but, for the time being, the selling price (1.33 dollar per pound) is way higher than quotes for the imported product and the quality is lower.

However, it is worth noting that stocks from other countries (not from China), are at the same levels compared to that observed over the last four crops.

However, the consumption of these countries is moving up (5% from 2012/13 to 2013/14), leading the ending stocks/consumption ratio to be 34.6%, smaller than that observed in the 2012/13 season, of 36.5%, and in the 2011/12, of 41%. These data, in turn, indicate firm prices for the season. Therefore, the question is what will affect the market more: a possible pressure from China or the underpinning from other countries.

In Brazil, among aspects that may affect the market in the first semester of 2014 are registers of trades regarding the 2012/13 crop at BBM (Brazilian Commodity Exchange), which indicates that roughly 830 thousand tons are already traded.

Considering that Brazil may increase supply in 2013/14 to 1.56 million tons (according to Conab), there will be more domestic surplus from the second semester of 2014 onwards.

This fact might press down domestic quotes, leading them to be farther from the import parity, which is the maximum level for prices in Brazil, and closer to the export parity, which is the minimum value in the domestic market. The size of decreases, however, will depend on exports, which might reduce domestic stocks. For the time being, forecasts indicate shipments in 2013/14 following the same scenario observed in 2012/13, between 550 and 600 thousand tons.

Source: http://www.fibre2fashion.com/news/textile-news/newsdetails.aspx?news_id=158546
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World Cotton Trade to Be Challenging in Current Season
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