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China to emerge a strong cotton importer once more

"Production growth in China has been lean due to limited farmland and high labour costs. China has agreed to significantly increase its purchases of the US goods and services, and cotton is one of the top agricultural exports of the US. Production of viscose staple fibre will increase further in 2018, pulling down prices, observes Zhu Beina, President, China Cotton Textile Association. The association anticipates cotton textile sector to be using 4 million ton of viscose fibre by 2019."

 

China to emerge a strong cotton importer once more 002Tim Bourgois, head of the cotton platform, Louis Dreyfus Company forecasts by 2019-20, China will become major cotton importer, importing 10 to 15 million bales (2 to 3 million tons) each year. The current volume is around 5 million bales in 2017-18. Once the world’s top cotton importer, China has seen imports shrink from more than 5 million ton in 2011-12 to around 1 million ton in 2017, due to its efforts to reduce stockpiles of the fibre. Bourgois foresees, domestic cotton usage will increase by 1.5 million bales to 41.5 million bales in 2018-19.

Production growth in China has been lean due to limited farmland and high labour costs. China has agreed to significantly increase its purchases of the US goods and services, and cotton is one of the top agricultural exports of the US. Production of viscose staple fibre will increase further in 2018, pulling down prices, observes Zhu Beina, President, China Cotton Textile Association. The association anticipates cotton textile sector to be using 4 million ton of viscose fibre by 2019.

Taking global cues, during the recent China Cotton Industry Development Summit, 1.00 million ton of cotton quotas would be issued recently, and theChina to emerge a strong cotton importer once more 001 quotas will continue to increase in 2019. The sliding-scale duty quotas will be released to textile mills, while for processing trade quotas, mills need to apply for it. Though the specific releasing time has not been said, the news has been bullish for international cotton market, as the global market cannot fulfill the demand of 1.00 million ton.

Evolving supply dynamics

The three largest cotton producers: China, India and the US, estimate cotton output may decrease in 2018-19 season. Supply is likely to be relatively tight in 2018-19 season. International cotton prices are likely to remain high, or even increase, leading to higher international cotton prices than domestic prices. During June and Dec, cotton that will arrive at Chinese ports will be from Australia and West Africa (Jun-Oct), Brazil (Oct-Dec) and Central Asian and India (Nov-Dec). Except Australian and Brazilian cotton, which on arriving period, there may be outstanding orders to be concluded, for Indian, West African and Central Asian cotton, the sources have been signed contracts mostly, let alone the quality sources.

In USDA May supply and demand report, ending stocks outside China in 2017-18 are supposed to rise 1.90 million ton (increasing volumes of US, Indian and Brazilian cotton are 1.00 million ton), but the quality of remnant 2017-18 US and Indian cotton is a challenge. As Indian cotton has no quality advantage compared with China’s Xinjiang cotton, with no obvious price edge, China reduces the imports of Indian cotton. Going by the current market dynamics, while the supply on international market is tight, downstream mills may have no suitable sources to import and cannot use the quotas. Global and Chinese cotton prices are likely to increase.

 
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