China's new cotton subsidy policy may bring a positive impact on cellulose fiber
China's new cotton subsidy policy may bring a positive impact on cellulose fiberOn 10 April, the National Development and Reform Commission and the Ministry of Finance jointly issued “Notice of the Ministry of Finance on Improving the Implementation Measures of the Cotton Target Price Policy”. According to which-China began regulating the cotton market in 2014 by setting a target price, which stood at 19,800 yuan/MT during the year. Before 2017 one year fixed strategy was adopted and from 2017 it was changed to three year fixed strategy.In the 2020 notice, the description of the quantity was changed to "Xinjiang Uygur Autonomous Region and Xinjiang Production and Construction Corps". Guidance has been described, but implementation in practice is limited due to a lack of specific quantitative guidelines.The clarification of the subsidy cap of 5.1 million tonnes in 2023 is actually a clear quantification of this target. This policy is, therefore, an inevitable consequence of the management of sub-optimal cotton areas.What can be changed from the policy?According to the latest data for the 2022/23 cotton year, Xinjiang's cotton production could reach 6.13 million tons, far exceeding the subsidy amount of 5.1 million tons, which could result in the following:1. Cotton supply is expected to decrease, and cotton futures may move higher. Futures contract prices are likely to exceed 16,000 yuan/MT.2. Some cotton farmers may choose to plant other crop varieties, but according to the actual situation, Xinjiang's cotton production in normal years is about 5.6 million tons, and about 10% of cotton is not subsidized. In the absence of subsidies, even if cotton is sold at 16,000 yuan/mt, it is acceptable to some cotton farmers. Therefore, the actual decline in cotton production cannot be less than 5.1 million tonnes quickly.3. For the spinning and weaving mills, when the cotton supply in Xinjiang is short, there are two ways to deal with it. One is to increase the amount of imported cotton and imported yarn, and the other is to use other fibers as raw materials. Among them, the closest to cotton is cellulose fiber, including viscose staple fiber and lyocell staple fiber.This is undoubtedly a good thing for cellulose fibers, but it should not be too aggressive. We tried to quantitatively analyze that the cotton subsidy reduction in Xinjiang is about 500kt, and the potential drop in cotton production is not expected to exceed 300kt in the short term. The reductions will be complemented by imported cotton and yarn, and the volumes eventually squeezed into other fibers may not exceed 200kt. In a potential market share of 200kt, polyester staple fiber may also get a share, and demand for cellulose fiber may be just above 100kt.👇🏻👇🏻👇🏻👇🏻https://smartinfoindia.com/hi/news-details-hindi/Shortage-center-import-amid-duty-sima-cotton-export-waive-declined
