United Kingdom — March 24, 2011 — The salient change to Cotlook’s production and consumption
estimates during the past month has been the reduction to global consumption during the 2010/11
international season(August/July). Potential rates of consumption have moved into sharp focus of
late, based on mounting anecdotal evidence of mills being unable to absorb record raw cotton rates
into their pricing structure. While it is clear that many spinners have benefited from a very
favourable yarn business climate during the past couple of years, despite the sustained and
unprecedented rise in raw cotton replacement costs during that period, a critical point appears to
have been reached of late. The average cost at which raw cotton inventories have been purchased has
continued to rise, while resistance from yarn buyers to commensurate increases in spinners’ selling
rates has intensified. Other factors have contributed to a deterioration in the business climate,
including more general inflationary pressures, power shortages and, perhaps most significantly, an
inability to secure sufficient bank credit to maintain cash flow at the current elevated raw
material prices (an issue throughout the textiles and clothing supply chain). An increasing number
of reports have been forthcoming from major spinning centres of mills switching into synthetic
fibres, influenced by a massive price incentive, or idling capacity,either through an unwillingness
to risk spinning cotton at a potential loss, or owing simply to alack of available supply to cover
nearby needs. Such decreases in throughput seem likely to offset any positive effect of new
capacity being brought on stream in the next few months.
Our global estimate for 2010/11 has been revised downward by 411,000 tonnes, to 24,896,000
tonnes, taking it below our figure for 2009/10 of 25,109,000 tonnes. Our forecast for 2011/12 is
virtually unchanged at 26,411,000 tonnes, an increase of 6.1 percent from the current marketing
year.
Revisions to our production figures have been relatively minor, involving reductions of
104,000 and 112,000 tonnes for 2010/11 and 2011/12, respectively. In most Northern Hemisphere
producing countries, changes at this late stage of the current season are unlikely,though some
doubt persist over the final size of China’s crop. Forecasts of crops in the Southern Hemisphere
have been maintained, with harvesting about to gather momentum. Planting to the 2011/12 crops has
just begun in some parts of the world, and little new information is available to necessitate
changes to our original forecasts.
The net impact of the alterations discussed above means that we are now projecting a more
modest drawdown in global stocks this season, all of it in China (outside of that country we
predict that stocks will actually rise slightly). For the coming season, we still foresee a
sizeable rebuilding of stocks, following two seasons of decline.
Posted on March 29, 2011
Source: Cotlook Ltd.
