April 28, 2012

 

China's cotton supplies reach almost one million tonnes

 

 

Cotton stocks at bonded warehouses in China have reached almost a million tonnes after merchants filled up with cheaper overseas supplies in speculation that Beijing will raise import quotas, trade sources and analysts said on Thursday (Apr 26).

 

China, the world's top cotton buyer, may issue a new batch of quotas for as much as 1.5 million tonnes by May to help textile mills secure cheaper cotton overseas, since Indian supplies are currently about 15% cheaper than domestic cotton, they said.

 

Expectations of higher imports have helped push down China's cotton futures on the Zhengzhou Commodity Exchange, with the most-active September contract down over one% so far this week and on track for its worst weekly loss in five weeks.

 

"There is a large volume of cotton stockpiled at bonded warehouses and textile mills have been pushing the government to issue more import quotas," said Dong Shuzhi, director of the cotton department at Founder Commodities Group, a Chinese trading house.

 

"There are now growing expectations from the market that Beijing will agree to issue more quotas."

 

Despite lacklustre demand at home, China's cotton prices are now the most expensive in the world at over RMB20,000 (US$3,200) a tonne, thanks to Beijing's deliberate stockpiling campaign aimed at shoring up prices.

 

The buying blitz, which began in September and lasted for six months, saw the government sweeping up 3.13 million tonnes of cotton - nearly half of the country's 2011 harvest.

 

Cotton stocks at bonded warehouses - which allow goods that have arrived in China to delay the assessment of a 17% value-added tax - are hovering at between 500,000 and one million tonnes, according to industry estimates.

 

"They took care of the farmers from September to March with the stockpiling. Now the mills are saying 'take care of us'," said a cotton trader based in the US, adding that the stocks sitting in Chinese warehouses would likely be included in the import quota increase.

 

Some textile mills betting on higher import quotas have also signed additional contracts, mainly for high-quality cotton from the US and Australia, said the China Cotton Information Center in a report.

 

"Overseas cotton prices are much cheaper and have a big advantage over domestic prices, so mills are eager to get more cheap cotton, which is in short supply here in the market," said Zhang Wenmin, head of the cotton department with Wanda Futures.

 

Although the new batch of import quotas may exceed a million tonnes, China's import appetite may come in lower, since Beijing is likely to release stocks from its pent-up reserves to make space for this year's harvest due in September, said Zhang.

 

Zhang expects Beijing to release the 300,000 tonnes of old stocks, which were carried over from the 2009 harvest purchased at a price of about RMB17,000 (US$2,700) per tonne and should be attractive to textile mills.