China 2021/22 imports are forecast to fall more than 4.3 million bales from the previous year to 8.5 million, down 300,000 bales this month and significantly less than previous projections.

This downfall can be attributed to four main factors: massive earlier imports that remained in bonded warehouses at the start of the year, lower-than-expected consumption in China, a sudden change in the price differential between imports and domestic cotton, and lower demand from State-Trading Enterprises (STEs) relative to the previous year.

A massive quantity of uncleared cotton in consignment at the start of marketing year 2021/22 suggested the previous year’s import level, the highest in 7 years at nearly 12.9 million bales, was larger than the quantity clearing customs (i.e., entering the domestic market) because China’s customs data includes imports that haven’t cleared.

Roughly 10.0 million bales of foreign cotton are expected to clear in 2021/22, about 1.5 million bales lower than the previous year. Nonetheless, this is larger than the projected import level of 8.5 million.

Lower-than-expected consumption has also reduced imports. China’s 2021/22 domestic use is forecast to fall 2.0 million bales compared with the previous year to 38.0 million bales, owing to higher costs and slowing economic growth. Unusually high cotton lint prices, general COVID-related lockdown orders, and large cotton yarn/fabric stocks continue to depress demand for lint. More on Cotton Thompson on Cotton: Demand Destruction Likely to Outweigh Production Shortfalls Weekly Cotton Market Review – USDA Shurley on Cotton: “Negative Forces” Attempting to Take Control Weekly Cotton Market Review – USDA Thompson on Cotton: High Volatility as Traders Weigh Lower Production vs. Lower Consumption

Thompson on Cotton: Demand Destruction Likely to Outweigh Production Shortfalls Weekly Cotton Market Review – USDA Shurley on Cotton: “Negative Forces” Attempting to Take Control Weekly Cotton Market Review – USDA Thompson on Cotton: High Volatility as Traders Weigh Lower Production vs. Lower Consumption

A depreciating yuan relative to the U.S. dollar, record commercial stocks in China, and slowing demand for yarn continue to pressure China’s prices. As a result, spot prices in China have recently plunged relative to foreign cotton, making imports less attractive.

The A-index exceeded China’s spot prices for the first time in 11 years last month. Just 3 months ago, the A-Index was roughly 30 cents lower than domestic prices in China, signaling the drastic change in the relationship between international and China’s prices. For mills recently receiving 2022 calendar year import quota, this dynamic has now greatly reduced demand for foreign cotton.

Lastly, less demand from STEs has also slowed import demand. Most STE purchases are intended for state-owned warehouses, and an already high level of foreign cotton in state reserves has suppressed this demand by roughly 1.0 million bales relative to 2020/21 imports. Remarkably high cotton prices and lower global 2021/22 exportable supplies have also contributed to reduced STE purchases.

With the factors listed above, one can ascertain that the quantity imported does not equate to the level of foreign cotton consumed. On average, roughly one-fifth of China’s consumption is composed of imports.

China 2022/23 imports are forecast to rise 2.0 million bales to 10.5 million and remain the world’s largest for the third consecutive year. This projected level is attributed to greater demand from STEs and the replenishment of foreign cotton in consignment. Despite higher projected imports, the level of imports that clear customs is projected to remain unchanged.