With China planning to reduce cotton production, limit imports and increase consumption to reduce ending stocks, uncertainty might prevail in cotton sector till stability comes in production and consumption patterns in that country.
China was carrying high cost cotton inventory and the stock-to-use ratio was 180 per cent during 2013-14, importing 24.53 million bales during 2011-12 at a high cost and still carrying the same, said Matt Earlam, a senior trader at London-based Plexus Cotton, at the 7th CEO Conference organised by Southern India Mills Association (SIMA).
However, China has now decided to reduce its cotton imports to eight million bales and planning to reduce inventory gradually, he said, adding that China is also cutting down its yarn production and planning to import yarn from India, Pakistan and Vietnam due to high cost of production.
Stating that Chinese cotton policy has brought sudden downfall in New York prices index which had cascading effect on the entire world, he said that when the Rest of the World ending stocks during last seven years were around 40 million bales, Chinese stock was 62.91 million bales.
There was a huge gap in the inventory and price levels of China and the Rest of the World, which was affecting the performance of the textile industry in the Rest of the World, he said, adding that there was no growth in cotton consumption worldwide during the last 10 years as there was significant growth in polyester consumption.
There is an urgent need to increase cotton consumption and its products in the Rest of the World, as China preferred to import yarn rather than raw cotton, Earlam said.
T Rajkumar, Chairman, SIMA suggested mills to invest in value-added processes like weaving, processing, garmenting, made-ups and technical textiles, as India has adequate spinning capacity and expansion was happening in upcountry, particularly in Gujarat and other states.
As saturation has already been reached and the yarn markets have started picking up, normalcy would be restored shortly, he added.
