China’s cotton imports seen lower on high stocks, subdued consumption, says USDA

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China 2021/22 cotton imports are forecast to fall more than 4.3 million bales from the previous year to 8.5 million, down 300,000 bales this month and significantly less than previous projections, the US Department of Agriculture said in its latest monthly report.

It said this was mainly because massive earlier imports were still in bonded warehouses at the start of the year, lower-than-expected consumption, a sudden change in the price differential between imports and domestic cotton, and lower demand from State-Trading Enterprises (STEs) relative to the previous year.

A massive quantity of uncleared cotton in consignment at the start of marketing year 2021/22 suggested the previous year’s import level, the highest in 7 years at nearly 12.9 million bales, was larger than the quantity clearing customs (i.e., entering the domestic market) because China’s customs data includes
imports that haven’t cleared, the USDA said.

“Roughly 10.0 million bales of foreign cotton are expected to clear in 2021/22, about 1.5 million bales lower than the previous year. Nonetheless, this is larger than the projected import level of 8.5 million,” it added.

Lower-than-expected consumption has also reduced imports.

According to the report, China’s 2021/22 domestic use is forecast to fall 2.0 million bales compared with the previous year to 38.0 million bales, owing to higher costs and slowing economic growth. Unusually high cotton lint prices, general COVID-related lockdown orders, and large cotton yarn/fabric stocks continue to depress demand for lint, it pointed out.

Pressure in proces

A depreciating yuan relative to the U.S. dollar, record commercial stocks in China, and slowing demand
for yarn continue to pressure China’s prices. As a result, spot prices in China have recently plunged
relative to foreign cotton, making imports less attractive.

The A-index exceeded China’s spot prices for the first time in 11 years last month. Just 3 months ago, the
A-Index was roughly 30 cents lower than domestic prices in China, signalling the drastic change in the relationship between international and China’s prices. For mills recently receiving 2022 calendar year
import quota, this dynamic has now greatly reduced demand for foreign cotton, the report said.

Lastly, less demand from STEs has also slowed import demand. Most STE purchases are intended for state-owned warehouses, and an already high level of foreign cotton in state reserves has suppressed this demand by roughly 1.0 million bales relative to 2020/21 imports.

Remarkably high cotton prices and lower global 2021/22 exportable supplies have also contributed to reduced STE purchases.

China’s 2022/23 imports are forecast to rise 2.0 million bales to 10.5 million and remain the world’s largest for the third consecutive year. This projected level is attributed to greater demand from STEs and
the replenishment of foreign cotton in consignment. Despite higher projected imports, the level of
imports that clear customs is projected to remain unchanged, the USDA said.

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