China Cotton Stocks Plummet as Government Sets to Sell its Reserves

A huge volume of cotton stocks in China is set to be sold via auctions from March 6th to the end of August 2017. The Chinese government is expected to offer about 30,000 tonnes of cotton a day for sale over the next several months. There is also a possibility that the Chinese government will put up more cotton for auctions if its initial sales are going well and the market prices are rising, says the International Cotton Advisory Committee (ICAC).


Selling cotton stocks in big volume is not rare in China. Last year, the Chinese government sold about 2.6 million tonnes of its cotton stocks. The ICAC suggests that if a similar amount of the cotton stocks is sold this year, the total cotton stocks held by the Chinese government will fall to 6 million tonnes by the end of financial year 2016/17. China’s total stocks, including those in the private sector, are estimated to be around 9.3 million tonnes at the end of this financial year, representing for about 53% of world cotton stocks.


In 2017/18, China’s ending stocks is likely to further drop by 19% to 7.5 million tonnes, representing 45% of world stocks at the end of 2017/18, which marks the first season since 2011/12 that China’s stocks account for less than half of world total reserves. World ending stocks outside of China are forecast to grow by 7% to 8 million tonnes, which could place downward pressure on prices later this season.


When it comes to the world cotton stocks, the total world ending stocks are expected to down, for the third consecutive year, by 7% to 17.9 million tonnes in 2016/17. The ICAC forecasts that world cotton stocks will have a further decline to 16.7 million tonnes in 2017/18. World ending stocks outside of China are forecast to grow by 7% to 8 million tonnes, which could place downward pressure on prices later this season.


Another forecast conducted by the US Department of Agriculture suggests that the decline in China’s cotton stock could lead to larger cotton imports over the next few years, along with the country’s increasing domestic cotton production. It is estimated that China’s cotton import volume is likely to rise by 11% to 1.1 million tonnes in 2017/18 as its mill use continues to outpace its production. While China’s cotton production may increase by 2% to 4.8 million tonnes in the upcoming financial year.


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