Recently released estimates from Chinese analysts project the country's 2010-11 cotton production to be about 6.45 million metric tons, representing a 7.7 percent decrease from the 2009-10 output of 6.98 million tonnes. It is somewhat lower than the forecast from the China Cotton Association (6.64 million tonnes) and significantly lower than U.S. Department of Agriculture's estimate of 6.98 million tonnes. That drove China's cotton futures to a new record high last week, gaining 3.3 percent to close $3.74 per kg, and sources say the price spike occurred due to those expectations of a smaller crop.

“Based on the information that we received from our spinner contacts, people expect China’s cotton output to be reduced by at least 20 percent compared with earlier estimates,” according to Spinwell International’s Nicky Ken. “They also expect about a 30 percent decrease in quality, mainly due to bad weather conditions. Most Chinese spinners are still looking for imported cotton, especially if it’s high grade.

“Generally, our sources believe that the cotton price will continue to rise,” Ken continues. “The yarn prices are correspondingly on the bullish side and have not found a stable ground due to the cotton price volatility. Chinese mills now mostly sell yarn ‘hand-to-mouth,’ because they can’t be sure that the yarn sale that is made today will still be profitable a week from now.”

Mills that cannot afford to be in the game at this time have begun to stop or suspend production until the cotton/yarn prices stabilize. Some government-owned mills have been closed down to regulate and control the amount of cotton available locally. There is still a lot of activity, however, and no shortage of inquiries for imported cotton, according to Spinwell International’s China Team.