January 13, 2012

China's December cotton imports jumped 71% on-year to 790,400 tonnes, easing the bearish impact of a US crop report.

Imports in the full of 2011 totalled 3.36 million tonnes, up 18.6% on-year. Bargain buying pushed up December's cotton imports when international cotton prices were soft, with prices lower than those of domestic cotton, analysts said.

The USDA's monthly supply/demand report on Thursday (Jan 12) raised world 2011/12 end-of-season cotton stocks to 58.35 million bales from 57.67 million. 

Ending stocks in top consumer China were estimated at 17.05 million bales, from 15.55 million forecast previously, and this accounted for most of the rise in the world figure.

Traders said the prospect of significant Chinese cotton imports may account for the fact that cotton futures on ICE Futures US did not sell off as sharply as anticipated.

The key March cotton contract fell 1.19 cents to trade at 95.68 cents a lb at 10:23 a.m. EST (1523 GMT), moving in a narrow range from 95.41 to 97.50 cents.

Experts said cotton should have been "vulnerable to a setback" but the market was holding up and the additional Chinese imports may have something to do with that.

An industry source reported that China will add 1.1 million tonnes to its regular annual cotton import quota of 894,000 tonnes this year, bringing the total for 2012 to nearly two million tonnes.

The country issues a regular cotton quota of 894,000 tonnes each year subject to an export tariff of 1%, but provides for discretionary quota additions subject to a sliding 5%-40% tariff.

The Chinese government wants to beef up cotton stocks to prevent a repeat of what happened during a record cotton rally in 2011, when Chinese mills scrambled for supplies and the state could not alleviate price spikes, traders said.