India gains USA’s share in cotton exports to China

Demand is expected to pick up in China for the first time in at least five years in 2014-15, while cotton production in the country is forecast to contract around 7% next year

The Dollar Business Bureau | @TheDollarBiz Cotton-The Dollar Business   USA’s share in the Chinese cotton import market is the lowest in a decade, while India’s share is the highest in nearly two decades, according to a report by the US Department of Agriculture (USDA). China plays a vital role in the world cotton market. China is not only the world’s largest producer and consumer of cotton, it is also the top importer (accounting for about 34% of global cotton imports) and holds an estimated 60% of global cotton stocks. On the supply side, USA is the top exporter of cotton, exporting around 80% of the 2.8 million tonnes of cotton produced in the country or 25% of global cotton exports. USA used to be the main supplier of cotton to China, but policy changes, competition and weather have all contributed to a significant change in the cotton export market matrix in the last few years. China’s cotton imports have been consistently high, and this along with declining demand have led to record ending stocks of around 13.3 million tonnes in 2013-14 in the country, which is sharply up from around 2.3 million tonnes held by the country in 2010-11. Most of the stocks is being held by the government which is now discouraging higher cotton imports.

Cotton share-TheDollarBusiness Source - USDA

According to USDA, China’s cotton imports declined to around 2.96 million tonnes in 2013-14, down nearly one-third from the previous year. However, what made matters worse for USA is the 25% drop in cotton production last year due to a severe drought. Consequently, USA’s overall cotton exports declined about 21% to around 2.2 million tonnes in 2013-14, while exports to China plunged over 50%, accounting for nearly all of decline for USA exports. Meanwhile, India has become the top cotton supplier to China. According to USDA, India’s cotton exports to China stood at around one million tonnes (about 21% of total cotton imports by China) in 2012-13, but it grew to around 1.16 million tonnes in 2013-14, which is almost 40% of China’s total cotton imports in the year, much ahead of USA’s 20%. Australia’s share has also increased steadily to around 20% of cotton imports by China. USDA says that both India and Australia are both poised to capture their largest shares of that market in nearly two decades, and USA could slip to the third position behind Australia next year. “With continued strong competition from India and Australia, it remains to be seen if USA will regain the dominant share of China’s imports,” says USDA. India’s cotton production is forecast to reach around 6.3 million tonnes in 2014-15, while consumption is projected at around 5.4 million tonnes. India's overall cotton exports are likely to decline around 36% to 1.26 million tonnes in 2014-15, but developments in China may help push India’s cotton exports higher. Cotton production in China is forecast to decline 7% to around 6.4 million tonnes in 2014-15 due to discontinuation of cotton subsidies, while consumption is expected to rise to 7.9 million tonnes. International Cotton Advisory Committee (ICAC) says that consumption in China is expected to recover next year due to an anticipated decline in both international and domestic prices as well as improved demand overseas for downstream goods.