April 30, 2012

 

China may issue more cotton import quotas soon 

 

 

China is expected to issue additional cotton import quotas amounting to one million tonnes in May to help textile mills, which will welcome the relatively cheaper fibre from overseas, cotton traders and analysts said Friday (Apr 27).

 

The country was heard to have issued 1.5 million tonnes of import quotas at the start of the year, including 894,000 tonnes under a 1% tariff. Cotton imports beyond the quota are subject to a sliding tax rate ranging from 5% to 40%.

 

"I think government will issue [the additional quotas] in May, as the conditions are now ripe to do so," an executive with a Shandong cotton-trading firm said, adding farmers have already established planting plans and textile firms are facing narrow margins.

 

Domestic cotton prices are around RMB20,000/tonne (US$3,184), about 20% higher than global market prices thanks to a government stockpiling programme.

 

An official with the National Development and Reform Commission, which manages quotas, said in April that Beijing would neither issue new quotas nor release state reserves if cotton prices are weak.

 

Beijing is worried that increased cotton imports would pressure domestic cotton prices and hurt farmers' willingness to plant.

 

Even without additional quotas, China's 2012 cotton acreage will likely fall 9.4% from a year earlier, according a China Cotton Association estimate.

 

The government's reluctance to issue new quotas has resulted in record stocks of cotton in China's bonded areas awaiting customs clearance.

 

More than 900,000 tonnes of the fibre, much of it from India, is in the bonded warehouses, Wonder Futures Co. analyst Du Ying said. With the warehouses around full capacity, fresh bookings at tariff-free zones are tapering off as global cotton exporters and intermediaries await Chinese buyers.

 

More than 60% of the cotton at Qingdao bonded areas is owned by major exporters Louis Dreyfus, Paul Reinhart and Allenberg Cotton Co., while the remainder belongs to Chinese firms who are awaiting import quotas so they can clear customs, a Qingdao-based cotton importer said.

 

Du said the NDRC will likely release some government reserves in July and August to meet market demand.

 

"The national stockpiler needs to clear some warehouses for new crops, and there is also demand from textile companies," Du said.

 

Meanwhile, Beijing is likely to issue 500,000 tonnes to one million tonnes of import quotas soon, said Du, who added that the full-year quota cap is around 2.5 million tonnes.

 

China National Cotton Reserves Corporation is holding around 4.4 million tonnes of cotton in its warehouses, according to industry estimates.