Chinese cotton consumption is to grow for the first time in six years, helped by the boost to industry prospects from a weakened renminbi – although the increase in demand will do nothing to slow a slump in imports.
The US Department of Agriculture bureau in Beijing pegged at 34.5m bales China's cotton consumption in 2015-16, a rise of 500,000 bales year on year.
The increase would be the first since 2009-10, when demand peaked at 50.0m bales – before entering a slump fuelled in part by world economic slowdown, but also generous Chinese farm subsidy policy ahead of reforms last year.
In guaranteeing farmers cotton prices at a level well above international rates, the scheme supported domestic values – reducing the ability of domestic mills to compete against foreign rivals, besides fostering a surge in state stockpiles, as buyers turned to cheaper imported supplies.
The International Cotton Advisory Committee last week, estimating Chinese cotton demand in 2015-16 flat on its data at 7.7m tonnes (35.4m bales), said that "the lack of competitive pricing for cotton, coupled with turmoil in its stock markets, has curtailed growth in China's cotton spinning sector".
'Facilitate exports'
However, the USDA bureau - whose China cotton import estimate was also 500,000 bales higher than the USDA's official forecast - said that current projections for the country's economic growth, combined with population increase, backed ideas of "moderate growth" in consumption.
Furthermore, "the recent depreciation of the Chinese currency is expected to facilitate exports in 2015-16", the bureau said in a report.
The renminbi has shed some 5% against the dollar since authorities twice in two days loosened the currency peg against the dollar a month ago.
The weaker currency has been a concern for many commodity markets, in making dollar-denominated exports less affordable for Chinese buyers, which are the top importers of the likes of rubber, soybeans and sugar.
'A shadow on imports'
Indeed, the bureau stood by expectations for a sharp drop in Chinese cotton imports this season, of 31% to a 13-year low of 5.75m bales, despite the improved consumption outlook – and a lower production forecast.
The reformed cotton subsidy policy has provoked a bigger drop in cotton sowings than had been earlier expected – with area seen falling 19% to 3.5m hectares on a harvested basis, in line with the lowest on records going back 50 years.
The report also flagged expectations that the lower renminbi will "cast a shadow on imports", buy-ins from abroad will also be limited by a "tight" quota enforced by officials.
Still, Chinese cotton imports from the US will fall less fast than the average, by 26%, to reach 2.0m bales in 2015-16.
US market share "is likely to increase given that the Chinese industry favours the quality/grade of US cotton", the report said.
Output decline
The report pegged Chinese cotton output this year at a 12-year low of 25.3m bales, down 15.4% year on year.
The official USDA estimate is for a 26.0m-bale harvest, although the department will on Friday unveil reviewed supply and demand estimates for a range of crops worldwide.
The extent of China's fall in cotton output from a record high of 37.0m bales eight years ago has cost the country top rank among global producers, with India now the biggest grower.
