• Zhengzhou futures contract has plunged 40% so far this year

• Expectations of a bumper domestic crop add to the pressure

By Jinglu Gu

Add cotton to the list of Chinese commodities getting hammered by the government’s stringent virus restrictions and slowing economies around the world.

Futures have plunged 40% this year, leaving the market set to close at a two-year low on Tuesday, as Beijing’s persistence with Covid Zero hurts consumption and disrupts supply, and soaring global inflation saps demand for cotton products. The Zhengzhou contract ended the morning slightly weaker at 12,475 yuan ($1,708) a ton.

China is the world’s biggest consumer and importer of cotton, and its top exporter of apparel and textiles. It produces about three-quarters of the cotton it needs for processing and imports the rest, mainly from the US, although shippers have recently reported cancellations as a strong dollar and weak demand hit trade. Annual imports through September have fallen about a fifth from last year.

The battle to contain a jump in virus cases is putting renewed pressure on China’s economy, according to Bloomberg Economics, as more and more places become subject to curbs, while the latest business survey points to a contraction in the manufacturing sector. Demand for clothing is weakening as people stay at home and spend less, shrinking operating rates at textile mills, which in turn are buying less of their raw material. 

On the supply side, lockdowns in the northwestern region of Xinjiang, the source of almost all of China’s crop, has slowed the purchase and transport of the commodity, again forcing manufacturers to cut production. The amount of cotton processed in China is almost 50% below last year’s levels, according to the latest weekly figures from the national cotton association. 

Expectations of a bumper domestic crop this autumn are adding to the pressure, although the pandemic is imposing some delays on the harvest. The combination of China’s economic downturn and the contraction in demand overseas is likely to push prices lower still, said cottonchina.org, a government affiliated industry website.