Chinese cotton use to rise for first time in seven years

Chinese cotton use to rise for first time in seven years

China is poised, after six years when its cotton consumption has tumbled by one-third, to revert to raising its demand for the fibre – although that will not prevent a further fall in international prices.

Cotton demand in China, the top consumer of the fibre, will in 2016-17 grow by 1m bales to 33.0 million bales, the USDA, the US Department of Agriculture said in its first formal forecasts for next season.

An increase would be the first since 2009-10, when it reached a record 50.0 million bales, before China’s policy of providing guaranteed and elevated values for growers, in keeping domestic prices far above international ones, rendered its mills uncompetitive.

“For several years, China’s cotton price support policy was a detriment to cotton consumption,” the USDA said.

The consumption increase will be spurred by a willingness by China to accept lower bids for cotton stockpiled during its programme of guaranteed prices, after auctions last year failed to attract significant buying.

“A higher volume of reserve sales is anticipated during 2016-17 based on the widening deficit of production relative to consumption, as well as unofficial indications that reserve sale prices may fall,” the USDA said.

“In 2016-17, with increased access to reserve stocks, China’s cotton textile producers should be able to leverage China’s superior infrastructure to regain some of its lost share of world cotton spinning.”

However, the prospect of extra supplies hitting the market bode ill for prices, which will average 67 US cents a pound next season, as measured by the Cotlook A index of physical values, 2 cents below the average price expected for 2015-16.

The USDA blamed “weak” world demand growth, and low prices of manmade fibres such as polyester, besides “the pressure of China’s surplus disposal policies”, for undermining cotton price prospects.

Fears for China opening up its stake reserves, which the USDA estimated at 49.0 million bales, to hefty sales has been cited a big reason behind the fall in New York cotton futures this week to the lowest since 2009.

However, the USDA also forecast an end to the retreat in Chinese cotton imports, another major bearish factor for markets, saying they would stabilise at 5.0 million bales in 2016-17.

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