The International Cotton Advisory Committee (ICAC) lowered its projections for global production and ending stocks of cotton for the 2013/14 crop year, although stocks are still forecast to be higher than the current crop year. Global inventories will be 18.51 million tonnes by the end of July 2014, the organisation said on Monday as it lowered its June forecast by 130,000 tonnes. The change came as ICAC reduced its expectations for global production by 140,000 tonnes to 24.95 million tonnes.

That forecast shows an increase from the 17.88 million tonnes ICAC has projected for stocks by the end of the current crop year through July. The organisation is forecasting continued strong demand for foreign fiber in China, the world's top textile market. China's willingness to tighten monetary policy has already had an impact on China's spinning mills, ICAC said in a statement.

The mills are reducing purchases from China's reserves, which require payment upon delivery, and expanding imports with 90-day letters of credit, the ICAC said. China's national cotton reserve is estimated at close to 9 million tonnes at the end of June, ICAC said, noting that China's share of world stockpiles is expected to climb. "While the 2012/13 global ending stocks are expected to be approximately split evenly between China and the rest of the world, China is projected to hold close to 60 percent of global stocks by the end of 2013/14," ICAC said.

The projections highlight the divided nature of the world's cotton balance sheet. While global inventories continue to expand, China's hold on them is growing. Beijing began building its reserves in 2011, paying above global prices to support local farmers. The policy has driven gains in global cotton prices as well, as China's textile mills turn to imported cotton to combat high domestic prices.

"China's cotton policy remains the main driver of world cotton prices," ICAC said in a statement on Monday. Global production levels are expected to continue to outstrip overall consumption, ICAC said. Output in 2013/14 will reach 24.95 million tonnes, up from 26.39 million tonnes in the current crop year, ICAC said. Consumption is forecast to reach 24.33 million tonnes, up from 23.78 million tonnes in 2012/13.