The price of cotton is likely to drop by 17 per cent by the end of the year, analysts say.
The forecast comes as supplies in China are expected to increase and a peak in prices is causing a shift in demand to synthetic goods such as polyester, analysts at Standard Chartered said.
China, which consumes almost 50 per cent of the cotton produced globally, experienced poor crop yields in the past two years, prompting the country to import much of the commodity, sending prices higher, said Abah Ofon, an agriculture analysts at Standard Chartered.
"The supply constraints we had are not going to be repeated as production increases in China, weather conditions improve and plantations increase in other countries," he said.
The China National Cotton Information Centre forecast a decline in China's cotton demand into next year. "Natural fibres have a premium over synthetics, and the increase in these premiums are making synthetics more attractive," Mr Ofon said.
In addition, recent survey results from 15 Chinese provinces show an increase of up to 6.8 per cent in cotton planting this year, compared with last year. Assuming domestic consumption remains flat, imports by China are expected to grow by up to 4 per cent, Mr Ofon said.
China also plans a cotton purchase and reserve policy this year to stabilise prices. Under the programme, the China National Cotton Reserves Corporation will systematically buy standard cotton from September through to March next year. Purchases will be triggered when market prices fall below the state purchase price of 19,800 yuan per tonne for five consecutive working days. The sale of cotton reserves will take place whenever necessary.
Another market likely to change substantially in the next year's season is Pakistan, where floods devastated cotton crops last year. Pakistan is the fourth-largest producer and third-largest consumer of cotton. Reports on the ground indicate cotton growers in Pakistan are planting much earlier and increasing acreage this year. The US department of agriculture reports Pakistan's production could increase by 25 per cent this year.
