China Fashions Cotton Exit

Market News

China Fashions Cotton Exit

China's retreat from global cotton markets has changed the nature of global cotton trade, according to a new Rabobank report. Import demand was instead increasing in the emerging processing hubs of Vietnam and Bangladesh, Rabobank commodity analyst Georgia Twomey said. Commonwealth Bank agri-commodity analyst Tobin Gorey said demand was slowing in the cotton powerhouse because of high cotton stockpiles and rising wages.

"About half the spinning capacity in Vietnam is actually owned by Chinese investors anyway, so what they've done is moved production to a cheaper labour location." Australia has increased its cotton exports to alternative markets, particularly Vietnam, accordingly, as the Vietnamese textile industry takes off. Vietnam's total cotton imports increased 195% over the four years to 2015-16.

"In contrast, China - which has been Australia's largest cotton customer since 2004 - has reduced its total cotton imports by 82% over the same period - as they work through their extensive stockpile following the implementation of the national reserve stockpile policy in 2011," Twomey said. With Chinese cotton stock levels at their peak, reaching a high which is equivalent to two years of domestic use, it is expected it will take China a number of seasons to run down stocks to a more sustainable level. Gorey said while the stockpile looked large, most of it was low quality and would need to be blended with higher quality cotton from places such as Australia.

Twomey said the cotton market saw a 12% price jump in July, fuelled by a bigger-than-anticipated decline in global stocks, increased mill demand and speculator buying.

Cotton Australia chief executive Adam Kay said there had been "huge optimism" last week as prices hit $530 a bale. "Really the only thing holding the industry back for the current season is lack of water in a couple of core areas - in the Gwydir, Namoi and Macintyre valleys," he said