BEIJING—Cotton output in China's biggest producing region is expected to be 4% higher in the current marketing year, putting downward pressure on global prices and squeezing textile exporters.
China is the world's largest producer, consumer and importer of cotton, and if the output forecast is realized, it will reduce its need for foreign cotton while at the same time adding to already high domestic stocks.
Xinjiang Uygur Autonomous Region, which accounts for nearly half of the nation's cotton output, is expected to see a harvest of 3.2 million metric tons in the 2012-13 marketing year that began Aug. 1, up 4% on year, the local government said in a statement on its website dated Friday.
This will help offset production declines in other regions caused by reduced planting, doing little to change the oversupplied domestic market. Although China's government hasn't released harvest forecasts, calculations based on the Xinjiang government's numbers suggest its overall output will likely total 6.5 million tons, down slightly from last year's official output of 6.6 million tons.
The U.S. Department of Agriculture recently predicted that Chinese output this marketing year will be 6.76 million tons.
China last year built up the world's largest cotton reserves, of 3.2 million tons, through a stockpiling program that aims to protect farmers' incomes. A combination of this buying and import restrictions have pushed domestic prices well above global ones, which in turn hurt Chinese textile companies with limited access to cheaper imported cotton.
"Demand for locally produced cotton, especially from Xinjiang, has fallen sharply as China's textile industry slows," the local government said, adding that the government's management of the cotton market is facing "unprecedented" risks and challenges.
Weiqiao Textile Co., China's largest textile company, said in mid-August its first-half net profit slumped 90% from a year earlier to 54 million yuan ($8.52 million).
The large gap between domestic and overseas prices had led to higher production costs for domestic companies, an important reason for a sharp decline in exports of textile products and apparel, Weiqiao said at the time.
December cotton futures on the Intercontinental Exchange have slid 21% so far this year. During the same period, China's cotton prices have fallen just 6%.
To help textile makers, China recently issued additional cotton import quotas of 400,000 metric tons, traders said. It is also considering sales of 1 million tons of reserves of old-crop cotton.
Spot cotton prices in China now are near 18,500 yuan per ton, or 20% to 30% higher than the cost of U.S., Australia and Indian cotton.