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The impact of China's cotton storage policy on global cotton prices
2024-08-16 13:36
The U.S. Cotton Company released a new survey report, saying that as the world's cotton producer, consumer and importer, China has become the center of the world's cotton market.
The US Cotton Company released a new survey report, arguing that as the world's cotton producer, consumer and importer, China has become the center of the world's cotton market. Since the sharp fluctuation of cotton price in 2010/2011, China's position on cotton price has become more and more important, mainly because of the relevant policies of the Chinese government. At present, China reserves 50% of global cotton stocks. At the same time, its decision-making also affects global cotton prices.
China's cotton policy mainly has two tools: government reserves and import quotas. The cotton storage mechanism has been used as a tool to stabilize cotton prices in China and to support spinning mills and cotton farmers. However, low guaranteed prices were introduced in March 2011, and interest regulation was tilted in favor of cotton farmers to cope with large fluctuations in global cotton prices. The high price of cotton in China has caused a cost burden on spinning mills and led price pressures downstream in the supply chain.
In the 2012/13 cotton year, Chinese cotton prices and international prices also widened to 53 cents/pound. The increase in the price difference between the two has weakened the competitiveness of Chinese spinning mills in the global cotton yarn market, and has also led to a decrease in China's cotton consumption in the past few cotton years. Compared with the 07/08 cotton year, China's cotton consumption in the 12/13 cotton year decreased by 15.5 million bales, which means that China's spinning mills reduced cotton consumption by more than 30% in five years.
Moreover, high stocks have also caused cotton supply problems. Because the purchase of cotton storage mechanism has delayed the market reaction, and China is still the world's cotton consumer, the main problem in the global cotton market is how China will plan to supply cotton to spinning mills-through reserve cotton auction or import cotton.
In order to consolidate the effectiveness of the cotton storage mechanism in regulating domestic cotton prices, China has also implemented an import quota system. China's import quota system allows cotton to be procured from abroad through three methods: tariff extra-quota preferential tariff rate (TRQ), sliding duty and 40 percent flat rate.
This year, China agreed to import tariff quotas. However, the different options for cotton imports under the import quota mechanism still have transparency issues-the import quota allocation process is not clear. For the tariff quota preferential tariff rate and sliding quasi-tax, and the spinning mill's import cotton quota qualification selection process is non-open. Can get the import quota certificate is the state-owned trading enterprises of spinning mills, at least capacity of more than 50000 spindles spinning mills and export-oriented spinning mills, that is, "processing trade" enterprises. Moreover, China's domestic cotton prices have always been higher than the global cotton prices, and imported cotton has greatly affected the competitiveness of China's spinning mills.
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