January 8, 2013

China is planning to increase the import quota for textile mills as it seeks to increase the quantity of low-cost import of foreign cotton.

However, if the proposal is passed, the mills would be required to procure three tonnes of cotton from state reserves for every one tonne that they import, according to a report.

The stockpiling policy adopted by the Chinese Government in 2011 to help the domestic farmers by procuring cotton at premium prices has pushed up the prices of domestic cotton.

However, following the policy the state reserves are seen reaching a peak of 8.6 million tonnes by conclusion of the programme in March 2013. Therefore, the Government is now looking at releasing an undisclosed stock from its reserves by allowing conditional imports, the National Development and Reform Commission (NDRC), the apex planning agency said.

During 2012, the country sanctioned import quota of over 3.7 million tonnes of cotton at reducing tariffs of 5-40%, but only some of the mills benefited from this. Others were forced to procure high-priced domestic cotton, which badly impacted their competiveness.

Also, the firms which were allowed to import under quota often indulged in selling their procurements to other mills with a high profit margin, which also increased the cost burden of other mills.

As the stockpiling and import quota policies have shoot up domestic cotton prices, Chinese textile mills are now looking to import cotton from foreign countries, as that way they can save around 40%.

Any hike in import quota by China, the world's biggest importer and consumer of cotton, is likely to stir a hike in cotton prices in the US, which is the second biggest exporter of cotton to China.

Indicating an on-year rise of 79%, China's cotton imports during first 11 months of 2012 reached a record 4.6 million tonnes.