China next year may match its 2016 sales from state cotton reserves to help plug a growing deficit in supply, an influential trade website quoted a government official as saying. Plans by the world's top textile market to sell down its huge reserves of cotton are closely watched by the global market, with China holding more than half of the world's inventories after a years-long stockpiling programme.
Amid growing financial pressure and a change in policy, it is now attempting to sell off those stocks. It sold about 2.5 million tonnes in auctions this summer, extending the sales by an additional month on higher demand from mills. "The new year's reserve destocking task is still formidable," said Zhang Jinguang of the economy and trade division at the National Development and Reform Commission, China's state planner.
"With domestic production deficit growing, we expect the volume of cotton to leave the reserves will not be lower than last year," he said at a meeting in eastern Shandong province. His comments were reported by Cncotton.com, a government-backed trade website. China is expected to produce 4.9 million tonnes of cotton in 2016/17 crop year that started this month, with consumption pegged at around 7.7 million tonnes.
Zhang urged the cotton reserves authority to carry out sufficient preparations to make sure it was ready to release at least 1 million tonnes by March. China's recent round of reserve auctions led the United States Department of Agriculture to cut its estimate for global stocks earlier this week, and raise its figure for Chinese consumption, suggesting that mill demand in China had been previously "underestimated". The move pushed ICE cotton futures to a one-week high. Analysts said, however, that import restrictions would limit benefit to exporters.
"Chinese import demand though is set to remain weak with small import quotas and prohibitively high out-of-quota tariffs still in place," said Tobin Gorey, analyst at Commonwealth Bank of Australia in a report. Beijing said on Thursday its import quotas for cotton would remain at previous years' levels of 894,000 tonnes.
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