Chinese cotton imports plummet as markets await auction details

Chinese cotton imports plummet as markets await auction details

Chinese cotton imports were sharply down in February, as markets brace for the release of the huge government inventories

China imported 56200 tonnes of cotton in February, down 65 % on the same time last year, customs data showed.

The figure is a further reduction from the 95588 million tonnes seen in January, although this would have been in part down the February New Year holiday.

Chinese imports falling back

Cotton demand from China is slumping, thanks to heavy inventories and sluggish economic activity.

In fact, China is expected to be overtaken by Bangladesh as the world’s top cotton importer in 2015-16.

The US Department of Agriculture has forecast Chinese cotton demand, in the year to July 2016 at just 5.0 million bales, or 1.01 million tonnes, the lowest imports in twelve years.

State auctions

Markets are waiting for details on how China intends to draw down its massive state inventories.

The Chinese government is believed to have accumulated as much as 11m tonnes of cotton, as part of a price support scheme.

The government is now planning to release these supplies back on the market, but at what price, and at what speed, remains to be seen.

Clarification needed

A series of auctions last year saw very little interest, as the asking price was kept high in order to protect returns for Chinese cotton farmers.

Louis Rose, of the rose report, warned that speculators on the US were still wary of the threat these auctions might pose, saying that “clarification from China on its upcoming reserve release is still likely required in order to entice longs from the speculative side”.

Markets seem to be readying themselves for details on the release of the stocks before the end of the month, Mr Rose said.

New York prices suffer

Pressured by sluggish global demand, cotton futures had a terrible start to the year.

By late February, prices in New York reached low as 54.53 cents a pound, down 15 % from the start of the year.

True, prices found some traction in March, after the International Cotton Advisory Committee saw global cotton inventories falling 8 % this marketing year, with further declines in 2016-17.

A stand-off between cotton bulls and bears ended with the sellers taking control, backed by the threat of Chinese cotton sales, and an upbeat estimate on US sowings of the fibre.

May cotton futures, having closed in essence flat in New York for the last three sessions, stood down 2.2 % at 57.10 US cents a pound in late deals on March 18, 2016, dropping back below its 10-day and 20-day moving averages.

“I don’t’ see a lot of fundamental information to drive this market higher,” Louis Rose, of the Rose report, told Agrimoney. “There wasn’t’ enough data to say the market should have gone up.”

Planting in the spotlight

Indeed, on March 18, 2016, private analyst group Informa forecast 2016 all-cotton planting in the US at 9.5 million acres, up from the 8.6 million acres sown last year, and above estimates from many other commentators too.

The National Cotton Council has forecast 2016 plantings at 9.1 million acres, while the US Department of Agriculture has pegged plantings at 9.4 million acres.

Rose, terming Informa’s number was “optimistic”, forecast that sowings would be likely to come in at about 9 million acres, saying that some farmers who lost money on cotton last year, might not be keen to take on the risk of heavy plantings this year, given the crop’s high input costs.

Famers would “err on the side of risk management” by limiting cotton acres, and likely in many cases switch to soybeans which, in fixing their own nitrogen from the atmosphere, have lower fertilizer costs.

Eyes still on China

But Commerzbank said on March 15, 2016 that Chinese imports remained the key to the price outlook. “Since the global inventory reduction in 2016-17 is due solely to China, the upside price potential in New York will probably remain limited for as long as China’s imports do not pick up again and worldwide demand essentially stagnates,” Commerzbank said.

May cotton futures in New York were up 0.2 % in early deals, at 58.35 cents a pound. Prices are still down about 10 % since the start of the year.

http://www.agrimoney.com


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