China is coming up with a new policy in cotton that is expected to impact world trade in the fibre. Jaswinder Bedi, Chairman, The African Cotton & Textile Industries Federation (ACTIF) gives an insight on cotton world market to FashionatingWorld and shares the impact of China’s new cotton policy on India. Excerpts…
What is the estimated size of world's cotton production?
The size of the pie is 25-26 million tons that is the total cotton production. When broken down, China grows about 6 million tons and imports around 6 million tons from the US. India grows about 5.5 million tons and consumes around 4.5 million tons and has a surplus of about one million ton. Between China and India they dominate with more than 50 per cent of the world’s entire cotton production. The US is also a large player, as it grows about 4.5 million tons and consumes about a million tons, so they have a surplus of 3.5 million tons. That is the reason they probably are the largest exporter of cotton followed by India, Pakistan, Australia, Africa. In a nutshell, the true dominant players in cotton are India, China and the US.
Have you accounted for the business of cotton going from India to China as yarns?
India consumes 4.5 million tons in its factories but exports one million ton in raw form or raw cotton to China or other countries including Pakistan. Yarn is a big business in India with about 30 million spindles today. China has 67 million spindles, so India is the 2nd largest spinner in the world and the 3rd largest is Pakistan as they have 12 million spindles. With such a large spindleage their consumption of cotton is large. In the last seven years, we have seen India transform from a net importer to a net exporter and that is primarily because they moved from conventional cotton to GM cotton, which gives them the yield they are looking for.
What situation do you foresee after China offloads its cotton stock reserves?
China has minimum a reserve price and the cotton they have bought at higher prices have become a problem for them. So they have to shut down over a million spindles. I think it was cheaper to buy yarn from India than to spin in China because if you are buying your minimum reserve is a 120 cents and the world price is at 90 cents and it does not help to run your spindles. China is not in a hurry to offload stocks because if they offload they will disrupt the world like it happened two years ago. They cannot afford it as they have already bought them at a higher price and selling it at a lower price would mean China would be shooting themselves in the foot. It is better to slowly release their strategic reserve. The Chinese government is coming up with a new policy which will be more market friendly. We don’t know what the policy will at this stage. I think it will be difficult for us to project the future. It depends on the Chinese government and their minimum support price that they give the farmer.
How much time will it take for the slow phasing of the stocks?
It can be done in the next 12 months. All they need to do is not buy more stock.
What kind of global yarn or cotton trade do you perceive post this phase?
Global cotton trade used to be 50 per cent of all fibres but today it is only 30 per cent. World consumption of all fibres is 80 million tons and cotton forms 25 million tons out of the 80, which is 30 per cent. The world’s other markets are taking greater market share. I wouldn’t say cotton is losing its share but as a percentage of the overall pie it is shrinking.
What is in store for India post China’s stock offloaded?
For India it will be a big thing. Four and a half million is by no means small production but all the other fibres are competing with cotton. Polyester has dropped to less than 70 cents a pound and that is going to have an impact on cotton. Export to China will slow down because Chinese production will recommence again.
