ICE cotton dropped to a seven-week low on Monday after China announced plans to slash imports next year, a long-awaited announcement that confirmed market fears that a policy overhaul will remove the world's top buyer from the market. The benchmark December cotton contract on ICE Futures US fell 1.8 cents, or 2.8 percent, to settle at 62.59 cents a lb. It earlier plunged by more than 2 cents to as low as 62.22 cents a lb.
China will cut import quotas for 2015 to the 894,000 tonnes, or about 4.1 million 480-lb bales, as required under World Trade Organisation commitments. The move would nearly halve the US government's forecast of China's import demand of 8 million bales for the 2014-15 crop year that began on August 1. The statements are the latest details that China has shared regarding the rollout of the policy overhaul it announced earlier this year that has pressured benchmark ICE futures some 25 percent in the year to date.
Any news on policy changes by Beijing has been widely watched for its impact on global trade flows. China said in January it would move to a farmer subsidy program, stoking worries that the country's import demand would plummet at the same time that farmers in key producers, including India and the United States, harvest bumper crops.
China's three-year stockpiling program propped up prices, drove huge demand for foreign fibre and left the country's reserves big enough to feed domestic demand for over a year. "When the No 1 buyer in the world is doing everything it can to avoid buying (foreign) cotton, you have a problem," said Jack Scoville, a vice president with Price Futures Group in Chicago. The selloff gathered steam as trading volumes picked up in New York, with ICE prices following China's futures lower. Second-month futures in China dropped to a more than five-year low of 12,805 yuan per tonne (about 95 cents per lb).
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