China has clarified the subsidy ceiling for cotton in Xinjiang at 5.1 million tons, leading to concerns over a decrease in cotton supply and its impact on the market.
The target price for Xinjiang cotton has remained at 18,600 yuan/mt since 2016, with the subsidy amount limited to 85% of the national average cotton production in the base period.
However, the latest statistics show that Xinjiang's cotton output for the 2022/23 cotton year may exceed the subsidy quantity, which could cause a decline in cotton production and lead to an increase in cotton futures prices.
Some cotton farmers may choose to plant other crop varieties, while spinning and weaving mills may need to import more cotton or turn to other fibres such as cellulose fibre.
The reduction in cotton subsidies may not exceed 500kt, and the market share for cellulose fibre may increase by just over 100kt. The impact of the subsidy reduction on the industry and the stability of demand for other fibres’ remain to be seen.
