Chinese cotton imports were sharply down in February, as markets brace for the release of the huge government inventories.

China imported 56,200 tonnes of cotton in February, down 65% on the same time last year, customs data showed.

The figure is a further reduction from the 95,588m tonnes seen in January, although this would have been in part down the February New Year holiday.

Chinese imports falling back

Cotton demand from China is slumping, thanks to heavy inventories and sluggish economic activity.

In fact China is expected to be overtaken by Bangladesh as the world's top cotton importer in 2015-16.

The US Department of Agriculture has forecast Chinese cotton demand, in the year to July 2016 at just 5.0m bales, or 1.01m tonnes, the lowest imports in twelve years.

State auctions

Markets are waiting for details on how China intends to draw down its massive state inventories.

The Chinese government is believed to have accumulated as much as 11m tonnes of cotton, as part of a price support scheme.

The government is now planning to release these supplies back on the market, but at what price, and at what speed, remains to be seen.

Clarification needed

A series of auctions last year saw very little interest, as the asking price was kept high in order to protect returns for Chinese cotton farmers.

Louis Rose, of the rose report, warned that speculators on the US were still wary of the threat these auctions might pose, saying that "clarification from China on its upcoming reserve release is still likely required in order to entice longs from the speculative side".

Markets seem to be readying themselves for details on the release of the stocks before the end of the month, Mr Rose said.

New York prices suffer

Pressured by sluggish global demand, cotton futures had a terrible start to the year.

By late February, prices in New York reached low as 54.53 cents a pound, down 15% from the start of the year.

True, prices found some traction in March, after the International Cotton Advisory Committee saw global cotton inventories falling 8% this marketing year, with further declines in 2016-17.

Eyes still on China

But Commerzbank said on Tuesday that Chinese imports remained the key to the price outlook.

"Since the global inventory reduction in 2016-17 is due solely to China, the upside price potential in New York will probably remain limited for as long as China's imports do not pick up again and worldwide demand essentially stagnates," Commerzbank said.

May cotton futures in New York were up 0.2% in early deals, at 58.35 cents a pound.

Prices are still down about 10% since the start of the year.