Chinese cotton import demand reached an all-time low in Sept

YarnsandFibers News Bureau 2015-10-16 16:00:00 – UK

Chinese cotton imports demand has just reached 50,900 tonnes an all-time low in September, a decline of 59% year-on-year as large domestic inventories reduced reliance on foreign supplies, at a time when economic slowdown is weighing on demand. This is the lowest monthly import since records began in 2005, and the second month of record low imports in a row, website CNCotton reports.

The data from CNCotton follows reports on Wednesday from the China Cotton Association that Chinese imports for the first nine months of the year fell 42% to 1.16m tonnes.

Chinese cotton demand has been hit by a range of factors, including massive domestic stocks, a weaker industrial sector, and competition from synthetic fibres, which have become cheaper as a result of low petrochemical prices.

Chinese inventories accumulated as result of government price support policies, which encouraged rising domestic production, while mills favoured cheaper imported cotton.

The end of the price support policy left the government with ample stocks, while mills turned to domestic supplies, which were now priced at closer to international levels.

The US Department of Agriculture sees Chinese cotton imports falling to a 13-year low over the 2015-16 season.

According to analyst Judith Ganes-Chase, how far the market will ultimately slide depends mostly on China's next move with regards to attempting to unload the massive stockpile.

State cotton inventories are estimated at 11m tonnes, and a recent round of auctions had no success in attracting buying interest. The lack of buying was tied to the high prices demanded at auction, as a result of government reluctance to flood markets with cheap cotton, threatening prices for farmers.

China was unsuccessful at selling the cotton by auction and may be forced to lower the price to make the cotton move, should this be the decision, said Ms Ganes-Chase.

Previously it was felt that the Chinese government would simply hold the stock indefinitely, but the slump in the manufacturing sector could chose to unwind this stockpile sooner.

But there are concerns about the quality of Chinese cotton stocks, with large quantities of cotton that have been kept in bales for several years, which can cause the fiber to become brittle and difficult to spin. And these concerns could leave the door open for imports of high quality product when customs contracts are reassigned over the last three months of 2015.

Cotton group Reinhart noted on Thursday that China was seeing a shortage in good quality cotton. As harvesting is progressing, concern about the quality output in Xinjiang is rising. It is expected that high quality cotton including imported origins will be in good demand and fetch some premiums.

The economic wobble in China, and the potential it has to spread to other garment and textile producing countries in Asia, offer more potential bad news.

Consumption of cotton in emerging markets will no doubt recede and this too will put pressure on international values, said Ms Ganes-Chase.

But there may be some good news for Chinese industry, as the government recently announced that it would expand a tranche of so-called "Chinese quantitative easing," which would be beneficial for mills and garment factories as this move will allow lenders to use loans from local governments as collateral in order to borrow cheaply from the central government, targeting the funds at small and agricultural businesses.

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