May 19, 2012

 

China must depend on local cotton harvest

 

 

To meet demand, China must depend on local cotton supplies - and imports should only serve as a supplement, an official with the National Development and Reform Commission said Thursday (May 17).

 

"If we are overdependent on the international market, the first question is, 'Who can provide so much?' and the second is, 'What will it cost?'" said Zhang Xianbin, director of the economic and trade department under the NDRC, China's top economic planner.

 

China's cotton prices, supported by government stockpiling, are about 30% higher than global prices. Some textile companies are calling on the government to liberalise cotton imports to reduce their costs and improve their profit margins, but Beijing is very cautions about issuing new import quotas because it worries that it will discourage local farmers from planting.

 

China is the world's largest cotton producer, consumer and importer. It produces around seven million tonnes and consumes around 10 million tonnes a year.

 

The global financial crisis curbed cotton demand and a cotton surplus has pressured prices, he said, tipping global cotton prices to be much lower than domestic prices provided the weather isn't adverse and the global economy continues to sputter.

 

Despite the lower global cotton prices, Zhang said the government will prevent a large volume of imported cotton from entering the domestic market by using import quotas.

 

Benchmark September cotton futures on the Zhengzhou Commodity Exchange closed down 1.5% Thursday at RMB18,890 (US$2,984) a tonne, the lowest level in about 20 months.

 

Zhang said the government will likely sell some cotton from state reserves before the new crop is available in October, as it needs to empty some warehouses to make room for the new harvest and also meet market demand, but he didn't elaborate on the size or timing.

 

The government has more than four million tonnes of cotton in state reserves, including more than three million tonnes of domestic crop purchased through a programme intended to support domestic prices.

 

Beijing will continue to stockpile cotton from the 2012 harvest at a purchase price of RMB20,400/tonne (US$3,223), up from last year's RMB19,800/tonne (US$3,128), he said.