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China Continues to Pare Down Cotton Stocks, Prices to Rise

China will shell out more of its cotton stocks in the coming year.

Cotton production is down globally and ending stocks fell 14 percent to 19.1 million tons in the 2015/16 season, according to the International Cotton Advisory Committee (ICAC), and they will fall a further 7 percent, reaching 17.8 million tons by the end of the 2016/17 season as China continues to cut down its stocks.

China holds most of the world’s excess cotton stock, but following the sale of more than 2 million tons from its reserves this year, ending stocks were down 13 percent to 11.3 million tons.

The Chinese government restricted cotton imports as required by its World Trade Organization (WTO) commitments for the last two years and has said it will continue to do so in 2017. Additional sales from China’s reserve start up in March when most of the new crop will have been sold.

By the end of the 2016/17 season, stocks in China are expected to slip 15 percent to 9.6 million tons.

“After falling by 16 percent to 7.9 million tons, stocks outside of China may rise by 4 percent to 8.2 million tons,” ICAC said. “The stock-to-use ration for the world less China is projected at 34 percent, which is about four months of consumption, and in line with the 10-year average.”

Looking at world cotton production, projections point to a 7 percent increase to 22.4 million tons as an increase in average yield offsets a contraction in world cotton area.

India will still be the world’s largest producer, though its output will be flat at 5.8 million tons for the coming season. China’s output should decrease by 4 percent to 4.6 million tons, and production in the U.S. will tick up a sizeable 24 percent to 3.5 million tons.

Cotton consumption in the 2016/17 season will remain unchanged at 23.8 million tons, though the ICAC said there’s a widening gap between polyester prices and international cotton prices. Mill use will rise in Bangladesh, Vietnam and the U.S., where consumption will increase across the board.

“Exports from the United States are expected to rise by 26 percent to 2.5 million tons, as the abundant crop this season will provide a large exportable surplus,” ICAC said. “India on the other hand is likely to see its exports fall by 34 percent to 825,000 tons as stocks are replenished after declining by 21 percent to just under 2 million tons by the end of 2015/16.”

Cotton prices according to the Cotlook A Index are projected to rise to 74 cents for the 2016/17 season, up from 70 cents the previous season.