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China mills to buy more cotton from state reserves on tight supply

China mills to buy more cotton from state reserves on tight supply Source:
Date: 14-03-2013
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Textile mills in China, the world's largest consumer of cotton, will buy more fibre from bulging state reserves over the next five months, after a state stockpiling drive cut back domestic supplies, analysts said.
A large sale of state cotton would further slow imports by China, the world's top buyer, particularly after U.S. cotton prices touched a 10-month high.
State reserves are at a record high of 10 million tonnes, or more than 60 percent of global stocks, after the stockpiling effort pushed domestic prices 50 percent above world prices and drove imports to a record 5.13 million tonnes last year.
The analysts estimated that Beijing would sell between 3 million and 4 million tonnes in the months up to August, when the new domestic harvest is due.
The government started reserve sales of cotton in January, but activity has been sluggish, with just a fifth of offered volumes sold in the past two months, partly because of the Lunar New Year holiday in February.
Although demand is expected to pick up, analysts do not expect all the 4.5 million tonnes on offer to be sold.
"We do not expect the entire volume to be sold out," said Zhang Hongzhou, an analyst with Galaxy Futures Co. Ltd, referring to the target China's top planning body has said the government wants to sell by the end of July.
"Demand from textile mills has not improved that much while there were already a large number of imports last year."
In the first two months of this year imports have slowed, however, with February shipments down 38.5 percent on the year at 378,700 tonnes, according to official customs data published by an industry site (
Traders have speculated that the government may be willing to lower the bidding price from April, or even allow trading firms to participate in the bidding. Normally only mills are allowed to take part in state auctions.
"Given the huge financial burden, the government is eager to reduce the stocks. We doubt the government will stockpile that much new harvest again," said one industry source who declined to be identified because he is not authorised to speak to media.
He estimated the stocks were equivalent to 200 billion yuan($32.19 billion) stuck with the government.
Beijing stockpiled 6.36 million tonnes of cotton from last year's harvest at a price of 20,400 yuan ($3,300) per tonne, in addition to 3.3 million tonnes the previous year.
The surge in U.S. prices has made imports unattractive for textile mills without import quotas, since they have to pay a 40 percent tariff. Mills are still waiting for Beijing to issue more quotas, but the timing of the move is unclear.
The United States is the largest supplier. The U.S Department of Agriculture estimated China's cotton imports in 2012/13 at 15 million bales (or 3.6 million tonnes), down from 24.53 million the previous year.
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