Global cotton consumption growth will slow down by 1.4 percent in 2013-14 due to lower consumption by China, the largest apparel maker in the world.
Cotton consumption growth will remain relatively firm in Asia this fiscal year, while its global consumption will increase a bit in 2014-15, according to the latest report of the Economist Intelligence Unit (EIU).
The EIU forecasts are based on the assumption that China will abandon its current policy of stockpiling cotton in 2014-15, according to the report.
The EIU is the research and analysis division of the Economist Group, the sister company to The Economist newspaper.
China's policy—initiated in 2011—of stockpiling domestic production and its cotton imports support global prices to spiral, but arguably undermine cotton's relative competitiveness, which accelerated a shift towards manmade fibres, the report said.
“We expect the new policy to have an impact on demand in the medium term, but not to affect our current demand forecasts,” the report said.
In the near future, China will also face the dilemma of how and when to release its current reserves, which is estimated to be a third of the annual global consumption, the report said.
A sudden disposal would lead to a collapse in international prices, which could take some time to recover and might not be helpful for the Chinese authorities, the report said.
“We expect that consumption will continue to edge down in the next two years, despite the likely end of the stockpiling programme and the release of cotton reserves,” the report said.
Cotton demand will sustain in Bangladesh, the EIU said, as companies now prefer to relocate their factories to Bangladesh due to low production cost.
“After growing by an estimated 14.3 percent in 2012-13, we expect the consumption growth to slow in the next two seasons, but risks are weighted on the upside.”
Cheap labour has encouraged relocations of Indian and Chinese factories to Bangladesh, and investment is expected to continue in the next two seasons, according to the report.
Garment exports from Bangladesh rose by nearly 13 percent in value terms to $21.5 billion in 2012-13, performing particularly well in non-traditional export destinations such as Russia, Chile, South Korea and Japan.
Domestic supply is insufficient to meet cotton demand in Bangladesh, which currently imports around four million bales of cotton annually from the US, India, Pakistan, Australia, Uzbekistan and other countries.
“One risk to our forecast is that poor safety standards and reports of accidents in the textile sector could lead to a boycott by the importing countries, particularly the EU and the US,” the EIU report said.