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China’s Noncompetitive Cotton Prices Slow Spinning Sector Growth

China is still struggling with its cotton stockpile, and the glut coupled with noncompetitive prices on the commodity and a stock market in turmoil, have made the country’s spinning sector less competitive.

Over July and August, China tried to auction off some of the roughly 11 million tons of cotton it amassed under its cotton buying scheme, but only 3.4% of the total was sold, likely owed to high pricing and the slowing economy there.

An unexpectedly low total of 63,412 tons of cotton were moved during the sales, Reuters reported citing China National Cotton Exchange data. Estimates had pegged the sales during the period at a much higher 300,000 tons.

But mills hardly made an appearance as they know inventory available is still abundant and many were looking to avoid the high benchmark auction prices, which ranged from 13,200 yuan ($2,073) to 15,000 yuan ($2,356) per ton, compared to the Zhengzhou exchange’s most active contract with prices around 12,465 yuan ($1,958), according to Reuters.

Consumption of China’s cotton has slowed too.

In its latest report, the International Cotton Advisory Committee (ICAC) said domestic cotton prices continued to fall in August, averaging $0.95 per pound, but the still-too-high cost is limiting growth in China’s cotton spinning sector. Polyester prices also dipped in the month maintaining the gap between cotton and the manmade commodity.

China’s cotton consumption is expected to reach roughly 7.7 million tons, well below mid-2000’s highs of 10 million tons.

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World cotton consumption should grow by 2 percent but will be limited because international cotton prices are still higher than competing manmade fibers.

China’s cotton imports are forecast to decrease 12 percent to 1.6 million tons, which will make the fifth season of decline after the 2011-12 season’s 5.3-million-ton peak.

“Imports outside of China would offset China’s decline, rising by 3 percent to 6 million tons with gains in the next three largest importers,” ICAC noted. Exports from the United States are gearing for a 9 percent decline because of reduced production but the country will still be the world’s largest cotton exporter. India’s exports should recover by 21 percent to 1.2 million tons for the 2015/16 season.

China’s coming crop is expected to be better than in the previous season and prices should fall below the recent auction’s set sales price.

“If prices remain relatively low, the reserves would be under pressure to reduce their selling price in any future sales, increasing already substantial losses on the fiber that was bought at prices well above the market,” according to Reuters.