Fear that China is gearing up to release some of its 10 million tonne stockpile of cotton has sent cotton prices down 19% since mid-August to around 76 cents per lb.
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The Chinese government has shelled out $33 billion over the past two years buying domestically produced cotton, keeping the domestic cotton price at almost double the global price in a move designed to support Chinese cotton farmers.
Chinese cotton farmers responded to the higher price signals by boosting output meaning that last year the Chinese government had to buy 85% of domestically produced cotton to maintain its price support.
The policy has in turn encouraged Chinese textile firms to import vast quantities of cotton from abroad or setup mills in lower cost economies elsewhere in Asia.
No one is expecting China to just dump stock – this via Bloomberg.
According to Plexus “First they will stop building stocks, which they’re probably in the process of doing. The second step is to reduce stocks.” Cotlook report that this season’s buying program reached 1.08 million tons by end October, about a third less than last year while cotton group Ecom Agroindustrial Corp. Ltd expects an “orderly feed back to the market.”
Lower cotton prices likely to increase margins at clothing manufacturers and retailers.
Related article: Chart: Cotton price rally fraying at the edges as summer nears