Chinese Cotton situation is a mixed bag

Chinese textile and clothing companies are not only suffering from the slowdown of foreign orders but also from the relatively high priced Chinese cotton

As we all know, China is the world’s largest producer, consumer and importer of cotton and last year – in order to protect its farmers – China was boosting cotton reserves to 3.2 million metric tons and this had the effect that domestic cotton prices increased and at the same time the government implied also import restrictions. This situation has put textile and clothing companies under pressure, because they had to fight for foreign orders, to pay higher wages and also higher cotton prices. This erased profit margins and in addition those companies lost their cutting edge over some competitors from Bangladesh, Vietnam and other countries.

The largest Chinese Textile Company, Weigiao Textile presented a slump in profit of 90 % to CNY 54 million (around USD 8.52 million) in the first half year of 2012.

Cotton futures on December cotton fell 21 % up to date whereas Chinese cotton prices decreased only 6 %. Chinese spot cotton prices amount actually nearly to CNY 18500 per metric ton and this is 20 % to 30 % higher than in the U.S., India and Australia.

The most important Chinese cotton production area is the autonomous Xinjiang Uygur Region accounting for almost half of the domestic cotton output and in the ongoing season 2012-13 that just started harvest is expected to extend by 4 % to around 3.2 million metric tons but other Chinese planting areas will harvest less and therefore it is estimated that China’s total harvest will reach around 6.5 million metric tons, thus slightly below last year with 6.6 million metric tons.

The Chinese government issued recently additional cotton import permissions for 400000 metric tons and is considering the selling of one million metric tons from the reserve stocks to allow a relief to its textile companies.