According to the United States Department of Agriculture (USDA), China’s 2020/21 cotton imports are forecast at 12.5 million bales (480Ib bales), 75% above the previous year. This is driven by the highest projected consumption in the past 3 years and attractive prices for imported cotton relative to domestic supplies. Additionally, the rebuilding of stocks in Chinese State Reserves (SR) has been driving cotton import demand. As a result, on 11th June 2021, cotton price in China on Zhengzhou Commodity Exchange (CZCE) was at CNY 16/KG, up 2% m-o-m and 35% y-o-y.
Cotton 2020/21 consumption in China is estimated to recover by 21% y-o-y to 40 million bales (480Ib bales), accounting for half of the global consumption. Currently, spinners’ spot margins are roughly 30% higher than the previous year due to robust demand for cotton yarn and significantly lower yarn stocks. Along with spinners’ requirements, the highest SR demand in seven years is also supporting firm Chinese imports. Between December 2020 and March 2021, no domestic cotton was purchased by the SR, due to a dramatic decline in Chinese cotton production (-9% y-o-y).
A significant amount of imported cotton is likely to be from the US, which accounted for 47% of total Chinese cotton imports between August 2020 and April 2021. The commitment in Phase One of the US-China trade agreement is the main reason behind preferential imports by China. Overall, robust cotton imports by China are likely to exert upward pressure on both domestic and global cotton prices.