Cotton Reserves in India Swell to Record as China Buys Less

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Cotton stockpiles in India are poised to jump to a record as exports plunge and a revival in monsoon rains boost crop prospects.

Inventories will surge 25 percent to 7.39 million bales by October from 5.89 million a year earlier, the Cotton Association of India estimates. That would be the highest ever, data from the nation’s Cotton Advisory Board show. The surplus may further widen with next year’s harvest likely to be a near record 40 million bales, according to trader Gill & Co.

China is importing less cotton, used to make everything from jeans to tee shirts, after inventories in the world’s largest user swelled. That has shippers from India to U.S and Australia battling for market share in countries such as Bangladesh and Vietnam. Prices in New York slumped to a five-year low in January amid global oversupply.

“Disposing of the surplus is going to be a challenge for India,” Mohit Shah, a director at Mumbai-based Gill & Co., said by phone on July 16. “The signal coming out of China is that imports are going to be lower next year on a year-on-year basis. We are in a tough spot, no doubt about it.”

India’s exports will probably drop to 5.5 million bales in the 12 months ending September from 11.79 million bales a year earlier, Shah said. That would be the lowest since 2008-2009, board data show. About 5 million bales have been shipped so far this season, he said.

Chinese Accumulation

China is seeking to reduce its own record stockpiles, accumulated through a government program to support farmers. That will cut imports next season to as low as 5 million bales, according to Plexus Cotton Ltd., a Liverpool-based merchant. That would be the smallest since 2003, U.S. Department of Agriculture data show.

China’s imports in the first half of the year slumped 33 percent to 933,853 metric tons, customs data shows. Only 8.65 percent of the cotton offered at the first state auction this year was sold, Cncotton.com, an industry website owned by state-run China National Cotton Information Center, said on July 20.

Prices fell to 57.05 cents a pound on Jan. 23, the lowest level since August 2009 on ICE Futures U.S., and traded 0.3 percent lower at 64.32 cents on Thursday. Futures on the Multi Commodity Exchange of India Ltd. in Mumbai have declined about 34 percent from a record in 2013.

Silver Lining

The silver lining for India is the rising demand from domestic textile mills. Consumption may increase 5 percent in 2015-16 from about 32 million bales this year, said Dhiren Sheth, president of the Cotton Association of India. An Indian bale weighs 170 kilograms.

The area under cotton may drop 5 percent to 7 percent this year as most farmers didn’t get good prices in 2014-15, Sheth said. The plunge in prices forced state-run Cotton Corp. of India to buy 8.7 million bales at guaranteed prices.

A revival in monsoon rains over the main growing regions may help the crop already planted, said K.R. Kranthi, Director of Nagpur-based Central Institute for Cotton Research. The monsoon, which provides more than 70 percent of annual downpour, will be below normal for a second straight year as an El Nino heats the Pacific Ocean, according to the India Meteorological Department.

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