Chinese cotton imports are sagging, as the government floods the market with its accumulated inventories, leaving less room for importer supplies.

China imported 54,900 tonnes of cotton in November, down 35% year-on-year, the China Cotton Association said.

Chinese cotton imports so far this year are running at 750,900 tonnes, down 42% from last year.

Stock draw-down

"Reduced low-tariff import quotas and sales from state reserves are to blame," said Commerzbank.

The Chinese government is drawing down the huge stocks accumulated through a price-support mechanism.

The government has also reduced the amount of low-tariff import permits it issues.

China relinquishes role of top cotton importer

For the August to July 2016-17 crop year, the US Department of Agriculture expects cotton imports to rise slightly year-on-year, to 980,000 tonnes.

"This would still see China importing only roughly half as much cotton as it was two years ago, however, and less than a quarter of the amount it was importing four years ago," Commerzbank said.

"In other words, China has relinquished its – previously uncontested – role as the world's largest cotton importer," the bank noted.

"Now China ranks only third, behind Bangladesh and Vietnam."

As well as the stock drawdown, Commerzbank also noted reduced Chinese cotton consumption "due to the migration of the textile industry and of cotton processing to lower-wage countries".

Robust US exports

Despite falling Chinese demand, Commerzbank noted strength in US prices.

"Even without the impetus from China… the cotton price has been able to rise by 13% this year," the bank said, seeing the market's stability in the face of a rising dollar "remarkable".

"The robust US export figures of late are proof that the strong dollar has not put the brakes on demand at all as yet."

Markets at risk of sell-off

But Tobin Gorey, at CBA, warned of the risk of a speculative sell-off in US cotton markets.

"The investor long position in cotton, depending on the measure used, is either very large or at record levels," Mr Gorey said.

And prices have been failing to break out of a sideways range of late.

"The size of that long position means the market is at risk of liquidation if investors lose patience," Mr Gorey said.

March cotton futures in New York are down 0.5%, at 71.31 cents a bushel.