Chinese cotton stocks to fall 5-year low as govt auctions its huge reserves

The International Cotton Advisory Committee forecast that the policy of Chinese government auctions to off load its huge cotton reserves, and import limitations, will shrink Chinese cotton stocks by 7% in 2015-16, and a further 10% in 2016-17. Chinese cotton stocks will fall to a five-year low.

The sharp decline in Chinese imports, and falling domestic production, will help draw down stocks even as Chinese demand falls.

According to the US Department of Agriculture forecast China’s cotton stocks to fall by 6 percent in 2015-16, to 13.9m tones.

The Chinese government’s huge stockpiles, accumulated through an abandoned price support scheme, have been hanging over world markets.
Last month the government announced that it will sell up to 2.0m tonnes of cotton between May and August.

Daily sales will be made of up to 30,000 tonnes, with prices based on international and domestic markets in the run up to the sales.

China, until this year was the world’s top cotton buyer, is set to pare its imports to the minimum levels agreed with the World Trade Organisation.
Import restrictions are expected to shrink Chinese buying by 40 percent in 2015-17, to 1.1m tonnes, and a further, with a further 13% reduction in 2016-17.

And production in China is expected to fall, thanks to high production costs, with production falling to 4.6m tonnes in 2016-17, down 10% year on year.

The fall-off in production and imports will outweigh falling Chinese demand, which the ICAC saw falling to 6.8m tonnes by 2016-17.

The cotton commentator Louis Rose this week noted that a slow start to China’s reserve auctions, which start this week, could see an increased level of yarn imports into China, which is positive to US sales and values.

And a strong take-up of auctioned cotton, while it could depress prices in the short term, would strengthen US cotton futures prices in the long term.

Ahead of the auctions, they continue to think that China will be diligent in its efforts to drawdown it massive stockpile.

But even as Chinese buying falls off, import demand in other countries, particularly Vietnam and Bangladesh, is booming.

As far as world cotton production in concern, as poor prices for alternative crops see growers return to the fibre., ICAC forecast marginal increase in 2016-17.