China Reserve: “We Need More Time to Reduce Inventory”

By Jim.Robinson|July 19, 2013

When an official from China’s national cotton reserve speaks about its future plans, the entire cotton value chain listens. And on July 15 in New York, about 100 cotton and textile professionals gathered to hear those comments in person at a one-day conference entitled, “A Dialog on China’s Cotton and Textile Industry Evolution.”
Liu Hua, general counsel for the China National Cotton Reserve Corp. (CNCRC), wasn’t able to provide specifics to the one question everyone wants to know: What are China’s intentions regarding cotton, especially how and when it will reduce its massive stocks? But he did provide some general guidelines, as well as some insights about CNCRC’s business development plans.

About the size of the reserve. China currently has a 163% stocks-to-use ratio and is estimated to have 63% of the current world reserves. When asked from an audience member what CNCRC considers the “optimum levels” of its stocks, Hua replied, “The current state of affairs is abnormal. We are trying to reduce inventory but need more time. Consumption needs to be increased, as more and more farmers become city dwellers.
“But we don’t want cotton production to decrease too quickly. Personally, I feel it will take at least three more years before we have better consumption to use ratios.”

About its business development plans. Hua says that CNCRC is growing steadily and will focus on increasing its capabilities in three primary areas:

Maintaining optimum stocks of cotton (via a combination of domestic production and imports),
Improving internal technological and management capabilities, and
Increasing efficiency of distribution via warehousing & distribution.

Hua said CNCRC will create a dedicated logistics company “in near future,” which will oversee cotton storage and transportation. China currently relies heavily on railroads to get fiber from the production areas in the northwest to the mills in the east, but the intention is to increase the use of highways for better flexibility.
At the end of his presentation, Hua said CNCRC pledges to be more transparent and open in its operations. He was followed by speakers from USDA, Bayer CropScience, Bhadresh Trading, Xingjiang West Yinli Cotton Industry Group Co, Hebei Spring Textiles Co., Henan Tongzhou Cotton Trade Co., Ltd., the Tianjin Cotton Exchange Market, and R.J. O’Brien. The event was organized by the IntercontinentalExchange (ICE) and CNCRC, with support from the China National Cotton Information Center (CNCIC).