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China's share of world stocks rises in 2009/10
14
Jun '10
World stocks are estimated to fall 17 percent to 52.2 million bales at the end of 2009/10; relative to world consumption, global stocks are at their lowest level in 15 years. While stocks are declining in virtually all cotton producing and consuming countries, the estimated decline for China—the world's largest cotton producer, consumer, and importer—is only 8 percent, compared with 22 percent for the rest of the world. Retention of stocks in China is expected to raise its share of world ending stocks as of July 31, 2010 to 40 percent, compared with 33 percent at the end of both 2006/07 and 2007/08 (fig. 4).

A number of factors are boosting China's share of world stocks in the current season. China's cotton mill use has rebounded sharply in 2009/10, with growth estimated at 8 percent. China has the fastest-growing domestic economy in the world and demand for textiles remains strong despite sharply higher cotton prices. At the same time, logistical problems affecting production and transportation tend to raise stock requirements above the world average. Over 40 percent of China's production is grown in the remote Xinjiang Autonomous Region and must be shipped to mills in eastern China using very limited rail capacity. Cotton Outlook estimated that about 5.5 million bales of cotton were waiting to be shipped from Xinjiang as of the end of April.

China also holds significant stocks in its Government-owned reserve which are currently unavailable to the market. China's Government bought large quantities of cotton for the national reserve during 2008/09 in an effort to support prices depressed by the worldwide recession. Most of the reserve was then sold from May to December 2009 as demand recovered, but an estimated 5.5-6.5 million bales remain. With approximately 30 percent of China's estimated stocks unavailable to the market, China's mills are demanding more imports in order to assure an adequate supply. USDA increased its estimate of China's imports by 8 percent to 10.8 million bales this month, reflecting sharply higher levels of imports in recent months. Even with higher imports, China will have the equivalent of only about 2 months of mill consumption in free stocks (mill stocks plus commercial stocks) at the end of September 2010, unless reserve stocks are released.

Based on current projections, China faces severe supply constraints in 2010/11. Production is expected to rise marginally, and world supplies outside China will continue tight relative to demand, thereby limiting opportunities for increased imports. Consumption is projected to rise about 3 percent to 49.0 million bales, while stocks are forecast to fall 10 percent to 18.6 million bales, accounting for most of the projected decline in 2010/11 world stocks. At this level, China's share of global stocks would decline slightly to 37.5 percent at the end of 2010/11.

U.S. Department of Agriculture (USDA)

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