China's cotton reserve sales begin May 3

03 May '16

3 min read

China's cotton reserve sales which begins tomorrow, are likely to impact the country's imports and stocks, the Washington-based International Cotton Advisory Committee (ICAC) has said in a press release.

The Chinese government announced its plan for auctioning cotton from its reserve last month. Sales will begin on May 3 and run through the end of August, immediately before the harvest of the 2016-17 domestic crop.

Although sales are beginning in May this season, the Chinese government expects that sales in future years will begin in March, when marketing of the current crop usually begins to wane. The daily volume will be capped at 50,000 tonnes, which is similar to the average daily volume offered for sale during 2014-15.

A price floor will be updated weekly and will use the average of domestic spot prices and international physical prices. The Chinese government has also indicated that it may purchase a limited quantity of cotton for its reserves depending on actual sales during the previous season, with a focus on high quality cotton, the ICAC release said.

As China's cotton imports have fallen, so have world imports. In 2015-16, world cotton imports are expected to decline by 3 per cent to 7.4 million tonnes and China's imports by 40 per cent to 1.1 million tonnes. During this time, imports by Vietnam and Bangladesh have continued to grow along with rising cotton consumption. In 2015/16, Vietnam's imports are expected to rise by 17 per cent to 1.1 million tonnes and Bangladesh by 12 per cent to 1.1 million tonnes. In 2016-17, China's imports are forecast to decrease by 13 per cent to 940,000 tonnes as imports are expected to be limited to the volume required by its WTO agreement, with sales from the reserve to supplement extra demand.

Restrictions on cotton imports and the sales from government reserves may cause ending stocks in China to fall by 7 per cent to 12 million tonnes in 2015-16, which would be the first decrease since 2010-11. Assuming similar conditions, China's ending stocks may be reduced by 10 per cent to 10.9 million tonnes by the end of 2016-17. Stocks outside of China are projected to decline by 7 per cent to 8.4 million tonnes by the end of 2015-16, but are forecast to increase by 2 per cent to 8.7 million tonnes in 2016-17.

World cotton production is expected to increase slightly limiting the reduction in world ending stocks in 2016-17. After contracting 9 per cent to 31.2 million hectares in 2015-16, world cotton is projected to expand by 1 per cent to 31.4 million hectares as declining prices for competing crops in 2015-16 encourages farmers to return to cotton in 2016-17 despite low prices. (SH)

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