High domestic cotton prices and low polyester prices in China have made its cotton spinning sector less competitive and which is also the world's largest consumer of cotton.

“The Cotlook A Index and the price of polyester in China were nearly equal during most of the 2000s, with cotton sometimes cheaper of the two,” the International Cotton Advisory Committee (ICAC) said in a press release.

According to ICAC, the prices started diverging in 2009/10, and cotton prices have remained substantially above those of polyester since then.

During the build-up of Chinese reserves, domestic cotton prices as per the China Cotton Index were around 144 cents/lb, but quickly fell when the government announced it would no longer buy cotton.

Domestic prices continued to fall in August 2015, averaging 95 cents/lb and narrowing the gap with international cotton prices.

However, polyester prices have also fallen during the same period, maintaining the spread between cotton and polyester.

“The lack of competitive pricing for cotton, coupled with turmoil in its stock markets, has curtailed growth in China's cotton spinning sector,” ICAC averred.

“Consumption is projected to reach around 7.7 million tons, far below the peak of ten million tons in the mid- 2000s,” it informed.

In recent years, mill use has shifted to lower cost countries, primarily in Asia, as cotton spinning has become less competitive in China.

ICAC believes that in 2015/16, world consumption growth will likely be limited, because international cotton prices remain higher than competing manmade fibres.

World cotton consumption is forecast to grow by 2 per cent and reach 25 million tons, which remains below the volume consumed just before the global economic recession.

In addition to China, India and Pakistan are the largest consumers of cotton and these three countries alone account for 64 per cent of world cotton consumption.

ICAC further informed that consumption in India and Pakistan is anticipated to increase by 3 per cent to 5.6 million tons and 2.6 million tons, respectively.

However, world cotton area is projected to be down 7 per cent in 2015/16 to just under 31 million hectares due to significantly lower prices in 2014/15.

ICAC also expects the world average yield to decrease by 3 per cent to 764 kg per hectare with world production down 10 per cent to 23.7 million tons.

“Limited growth in demand will not make a large impact on world ending stocks, which are expected to be reduced by 6 per cent or just over 1 million tons, to 20.4 million tons,” it noted.

World cotton imports are projected to remain stable in 2015/16 at 7.6 million tons, while China's imports are forecast to decline 12 per cent to 1.6 million tons from a peak of 5.3 million tons in 2011/12.

Imports outside of China would offset China's decline, rising by 3 per cent to 6 million tons with gains in the next three largest importers.

While exports from the United States are projected to dip 9 per cent, due largely to reduced production, ICAC expects that it will remain the world's largest cotton exporter.

The US based cotton body also noted that after falling 51 per cent in 2014/15, India's exports may recover by 21 per cent to 1.2 million tons in 2015/16.