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China sells quarter of state cotton reserves so far this year

China sells quarter of state cotton reserves so far this year Source: www.reuters.com/
Date: 09-06-2013
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China, the world's largest second-largest cotton importer, has sold 2.5 million tonnes of the fibre from state reserves so far in the current marketing year, a trade body said on Friday, as it looks to offload close to half its swollen stockpiles.

Beijing, which has amassed some 10 million tonnes of cotton stocks under a controversial policy to support farmers, has said it would sell a total of 4.5 million tonnes by the end of July.

Although traders had feared the inflow of state stocks could curb imports, the China Cotton Association said imports of the fibre that paid full taxes had jumped by nearly seven times from a year ago to reach 757,000 tonnes by April.

Gao Fang, vice president of the association, said at an industry conference that this was due to cheap supplies overseas.

China's cotton stockpiling policy has driven up domestic raw fibre prices, forcing the world's largest textile industry to seek cheaper supplies abroad, which can be some 40 percent cheaper than local prices after paying import duties.

Chinese officials have already confirmed that the government will continue its stockpiling policy for the next marketing year, buying domestic cotton at 20,400 yuan ($3,300) per tonne.

However, the association acknowledged the pressure the policy has put on the domestic textile sector as expensive cotton at home has jacked up their costs and eroded their cost competitiveness to other exporters, causing some firms to cut production or shut down.

"It was not our intention when we formulated the policy ... We didn't expect it would be implemented for so long", Gao said. "We have reached a consensus that we need a better policy for the Chinese market."
The government is studying ways to reduce the price distortion caused by the stockpiling plan, Liu Xiaonan, an official from the National Development and Reform Commission, China's powerful economic planning agency, said on Thursday.

Separately, Gao said China's production is seen at 6.5 million tonnes this year, down about 5 percent from year ago as farmers reduce planting of the fibre on slower demand from textile mills.

China harvested 6.84 million tonnes of cotton in 2012, up 3.8 percent from the year before. ($1 = 6.1362 Chinese yuan) (Reporting by Dominique Patton; Writing by Fayen Wong; Editing by Joseph Radford)
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