China’s Cotton Imports For 2023-24 Season To Surge To Highest Level In Over A Decade

China’s cotton imports for the 2023-24 season are forecast to reach 14.8 million bales, more than double last year’s volume, marking the highest level in more than a decade. Several factors have contributed to this surge in demand, including purchases for government reserves, lower domestic production and lower foreign prices relative to domestic prices. These imports are expected to account for more than one-third of global cotton imports, the highest share in over a decade.

The main driver of China’s rising imports has been the sales of foreign cotton from government reserves earlier in the marketing year. Imports for government reserves in 2023-24 are projected to be up roughly 3.0 million bales compared to last year, constituting one-third of China’s total imports. These strategic imports are expected to exceed the level of sales from government auctions earlier in the marketing year. By the end of the marketing year, the total quantity of government reserves is likely to cover 4-5 months of consumption.

China’s strategic reserve buys and sells both domestic and foreign cotton based on market needs. In the past three years, the government has purchased less than 500,000 bales of domestic cotton, relying instead on imports to replenish inventories. Imported cotton is expected to make up more than 90 per cent of reserves in state-owned warehouses, with U.S. cotton estimated to account for the majority.

Lower production and higher domestic use have also boosted import demand. China’s 2023-24 production is estimated to have fallen by 3.0 million bales to 27.5 million, while domestic use has risen to the highest level in three years at 38.5 million bales. Lower import prices, such as the A-index, compared to domestic prices have further driven demand. The domestic cotton price, delivered to a Chinese mill, has been roughly 5 cents higher than imports, even after including the 1 per cent import tariff and 9 per cent value-added tax.

With China’s beginning stocks rising nearly 4.0 million bales to 41.0 million, 2024-25 imports are forecast to fall nearly 3.0 million bales to 12.0 million. Despite this decline, imports are expected to remain above the 5-year average, supported by high levels of government reserves and cotton in consignment. The final level of 2024-25 imports will be influenced by three factors: final production, government sales of reserves and their extent, and the price differential between imported and domestic cotton during the marketing year.