Contents - Greenmount Press

marketing
throughout September, losing around seven per cent of its value.
Cotton Outlook’s estimates for world ending stocks this season
see a surplus in excess of 3.9 million tonnes, over 1.7 million of
which will reside in China.
The influence of China on international trade is not lessening;
the state reserves began auctioning 2011–12 cotton on
September 3, but sales were suspended on September 29. State
procurements of 2012–13 crop were also triggered and at the
time of writing, the government has bought substantially more
new crop cotton than the quantity sold. Chinese mill enquiries
for imported cotton have meanwhile focused either on cotton
that can still meet the quota deadline at the end of the year – to
the obvious benefit in recent times of Australian supplies – or on
cotton for which the buyer is willing to pay the full 40 per cent
import tariff, and thus avoid the import quota restrictions. But
import quota restrictions suggest that 2012–13 will see much
smaller imports – perhaps less than half in volume – than those
recorded in 2011–12.
The support mechanisms employed by the Chinese
government have presented difficulties for the domestic textiles
industry. Spinners, faced with comparatively inflated prices for
domestic raw cotton, but restricted by the imposition of import
quota, have been unable widely to procure cotton at a price
that affords them a profit. In consequence, cotton yarn imports,
which are unrestricted by quota, have risen substantially and
could breach one million tonnes, for the first time, by the end of
the calendar year. Another significant factor in the word cotton
market has been the delayed announcement of export policy
by India, which eventually has been clarified as unchanged, in
that exports are free for the time being of overall quantitative
limitation, but a restriction remains on the amount an individual
company can register within a specified time period.
Spinners in the subcontinent, and in other markets in South
East Asia, have continued to benefit from China’s turn to larger
cotton yarn imports. Many references have meanwhile been
made to the attraction of outward investment by Chinese textile
enterprises in lower cost producing countries, both in terms of
access to cheaper raw cotton supplies and lower labour costs.
Looking ahead, although much could yet change, next
year seems likely to see farmers in some Northern Hemisphere
producing countries turn away from cotton, owing to the relative
strength of prices for competing commodities, disappointment
at this season’s returns and fears of renewed cotton market
price volatility. Nearer to hand, in Brazil alone, a planted area
reduction of 30 per cent already seems likely, while some farmers
in Zimbabwe have apparently shown a preference for growing
tobacco.
A sharp reduction in global output next season could begin
to see a correction in the world oversupply position, something
which would be intensified if recovery in the global economic
climate should eventually begin to materialise.
But for the time being, buying confidence is generally low
and demand has been focused on prompt or nearby shipments,
to cover immediate requirements and bridge the gap between
old and new crop supplies. Some tentative forward business has
been done, but bearish supply and demand fundamentals appear
to be preventing merchants from going long.
China’s position seems likely to remain at the crux of the
global price direction. The Chinese government seems to have
embarked on a course that many believe cannot be maintained
indefinitely, and Beijing’s decisions may therefore continue
to have a significant influence on the extent of volatility and
uncertainty during the months ahead.
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40 — The Australian Cottongrower October–November 2012