As China’s trade surpasses the United States making it the world’s largest trading nation, The Wall Street Journal reports China’s demand for cotton is helping the global market by boosting demand:
The country’s textile mills are importing more cotton than many investors and analysts had expected. This large appetite for imports from the world’s biggest cotton consumer, combined with rising consumption of the fiber globally and a decrease in U.S. plantings, has fueled a rally in cotton prices.
For much of past year, China snapped up cotton for its strategic stockpiles, which are forecast to be at a record level at the end of the current marketing year on July 31.
“Chinese demand is going to be a big player” in the cotton market, said Jimmy Tintle, a speculative investor and chief executive at consulting firm GreenKey Alternative Asset Services in Longwood, Fla. “And I’m not looking for weaker demand, that’s for sure.”
The average price at China’s auctions through Feb. 1 has been $1.3534 a pound. Cotton imports cost mills about the same, taking transport costs, a 40% duty and taxes into account, according to cotton traders and merchants. Imported cotton tends to have longer fibers, which mills covet because it makes the fiber easier to spin and dye.
Despite China’s increased demand for cotton, Cotton crops are heading for their biggest drop in more than two decades, Bloomberg reports:
Crops will tumble 11 percent, the most since 1993, to 23.2 million metric tons in the year beginning Aug. 1, data from the International Cotton Advisory Committee show. Farmers will reduce sowing to 31.58 million hectares (78 million acres), a 7.7 percent decline and the largest in 11 years, according to Washington-based ICAC, which represents 41 governments. By July 2014, stockpiles will shrink 4.9 percent to 15.9 million tons, the first reduction in four years, the group’s data show.
“China will want to import some cotton that the world doesn’t have to give next season,” said Peter Egli, director at Chicago-based Plexus Cotton Ltd. “Prices will have to go higher to satisfy mill demand and China imports,” he said in a telephone interview.
Chinese imports jumped 75 percent in December from the previous month to 532,177 tons, a third monthly gain and the longest run of increases since September 2011, customs data show. Foreign purchases will reach 3.05 million tons in the year through July, 12 percent more than the 2.72 million tons predicted in January, the USDA said Feb. 8.
“Textile makers, especially those of us who are export- focused, have little choice but to use machine-picked high-end imported raw material,” Kong Jia, a manager at Hebei Xindadong Textiles Printing & Dyeing Co., said by phone from Shijiazhuang in northeastern China. “The government is trying to offload part of the huge stockpiles, but textile makers aren’t enthusiastic about buying that cotton because the quality and price aren’t attractive.”
