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China’ cotton auctions to reduce stock pile of fiber

Chinese cotton stocks will fall to a five-year low as the huge reserves are being auctioned off. The sharp decline in Chinese imports, and falling domestic production, will help draw down stocks even as Chinese demand falls. A policy of government auctions, and import limitations, will shrink Chinese cotton stocks by seven per cent in 2015-16 and a further 10 per cent in 2016-17.

China’s huge stockpiles, accumulated through an abandoned price support scheme, have been hanging over world markets. The country says it will sell up to two million tons of cotton between May and August. Daily sales will be made of up to 30,000 tons, with prices based on international and domestic markets in the run up to the sales.

China, which up until this year was the world's top cotton buyer, is set to pare its imports to the minimum levels agreed with the World Trade Organisation. Import restrictions are expected to shrink Chinese buying by 40 per cent in 2015-17 with a further 13 per cent reduction in 2016-17. And production in China is expected to fall 10 per cent year on year thanks to high production costs. The fall-off in production and imports will outweigh falling Chinese demand.