The US government on Friday cut its forecast of global cotton inventory for the marketing year to end-July due to expectations of higher demand as China, home to the world's No 1 textile industry, continues to bulk up its strategic stockpile of fibre.
In a monthly crop report, the US Department of Agriculture reduced its estimate for the surplus to 81.74 million bales, down 120,000 bales from last month's forecast. It was the second reduction since the season started on August 1. If the new estimate holds true, however, the carryover into next season would still be the highest since USDA records began in 1966.
Knight Capital cotton specialist Sharon Johnson described the report as "friendly, if not bullish", noting the first sizeable increase in consumption for the marketing year and rising exports. That will help ease concerns about competition from lower-priced polyester and weakening retail demand due to a sluggish global economy. "This month's 2012/13 world cotton estimates show higher production, consumption and trade, with ending stocks reduced marginally," the report said.
Prices remained in positive territory after the report's release, but failed to hold 10-month highs reached in earlier trade as some investors used the data as a trigger to lock in profits. The market also hit technical resistance. The most-active May cotton contract on ICE Futures US settled up 0.38 cent, or 0.4 percent, at 86.88 cents a lb.
Prices have rallied nearly 15 percent year-to-date as speculators have piled in, betting on big returns after two years of falling prices. Beijing's buying spree and expectations of lower crops next year have played into those bullish bets. The only major change in Friday's report was the increase in expectations for global consumption by 870,000 bales to 107.11 million bales. That would result in a 4 percent increase from 2011/12, although it is down 12 percent from the peak in 2006/07.
The government also adjusted higher its forecast for global exports by 1.49 million 480-lb bales to 41.92 million bales, citing sales and shipments in recent weeks. That is down from 46 million in 2011/12, when China's stockpiling strategy took off in earnest, but up from 35.49 million in 2010/11.
The USDA cited higher imports by China, Pakistan and Bangladesh, while exports rose for India, the United States, Australia, Turkmenistan and Uzbekistan. Most traders attributed the increase in demand to buying by Beijing's strategic stockpile, which will account for more than half the global surplus by July.
The USDA upped its forecast for China's ending stocks by more than 1.5 million bales to 44.11 million bales. The stash is big enough to feed the country's mills with raw material for more than a year and is considered to be unavailable to the global market, although there are big uncertainties about how or when the material may be sold. Record global ending stocks "are of no consequence unless Chinese stocks are made available at world market prices", said Peter Egli, director of risk management for Plexus Cotton Ltd, a British-based, medium-sized merchant.