China's cotton policy reform may not bring down prices

06 Jan '14

2 min read

China is currently in the process of reviewing its policy of temporary purchase and storage of cotton, under which the government purchases cotton at prices higher than the market prices in order to give good returns to cotton growers.

The current cotton stock, accumulated under the policy, in Chinese national reserves is estimated to be enough to last the country’s domestic consumption for one and a half year.

By the end of the ongoing cotton marketing year, cotton stocks in China are likely to cross 12 million tons, which would be more than half of the total world cotton reserves, according to reports.

Given the high amount of inventories accumulated by China under its policy, the releasing of stocks in one stroke would definitely bring down the international prices.

However, China is unlikely to flood the international market with cotton, according to analysts, as it would also lead to a drastic drop in cotton prices in the Chinese domestic market.

According to analysts, China is most likely to reduce its cotton stock by offering small quantities at frequent intervals, to avoid strong price correction, as it would otherwise negate the country’s effort over the last three years to pile up cotton reserves to avoid fall in cotton prices.

Last year, China took a step towards reducing its cotton stock by offering cotton from its reserves at 18,000 yuan per ton, which was higher than the international market price. However, only half of the 24,000 bales offered were sold.

Fibre2fashion News Desk - India

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