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China textile mills lobby to boost cotton imports, cut local prices

China textile mills lobby to boost cotton imports, cut local prices Source:
Date: 08-07-2013
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Chinese textile mills are lobbying for permission to import more cotton as they struggle to find high-grade fibre locally, a move that would boost prices from key exporters such as the United States and Australia if the government grants its approval.

But traders in the world's largest cotton importer are sceptical Beijing will agree to larger import quotas while its reserves remain swollen with domestically grown cotton bought under an aggressive stockpiling programme.

China strictly controls cotton imports to support local growers, making it difficult for some textile firms to source the high-quality cotton they need to make fabric for global clothing brands, with limited amounts of the grade grown locally.

Larger quotas would bolster prices for international cotton, with December cotton contracts on ICE dropping 4 percent last quarter, the weakest quarterly performance in a year on concerns over slowing economic growth in China.

The mills also want the government to reduce the price of sales from state reserves to around 18,000 yuan ($2,900) per tonne from recent prices of as much as 20,100 yuan. Prices are typically 40 percent higher than international levels, forcing many textile mills into heavy losses.

"This is a really serious problem and has lasted too long," said Yang Shibin, assistant president of the China National Textile and Apparel Council, referring to restrictions on imports and higher domestic prices.

"We want everyone to use more cotton and more domestic cotton. This way would stimulate cotton use," he told Reuters in an interview.

China's cotton stockpiling programme is closely monitored by international markets, with the country currently holding about half the world's stocks in its reserves.

Earlier this year, Beijing promised to grant mills new import quotas allowing them to purchase 1 tonne of overseas cotton for every 3 tonnes bought from state reserves.

But millers want the ratio changed to 2-to-1 due to robust competition from Asian mills, the poor quality of cotton in state stockpiles and a lack of supply of certain grades.

Yang said the cotton in China's reserves is inconsistent in quality and contains stray manmade fibres, as well as duck and chicken feathers.

The association in mid-June submitted its recommendations to China's economic planning body, the National Development and Reform Commission, he added.

But traders were doubtful the government would boost quotas.
"They have so much in stock, why would they allow more imports?" said Ma Jun, a trader at Founder Commodities.

Another trader said it was unclear when any increased quotas could be used, with the next U.S. crop not ready until late October at the earliest and much of the Australian crop already committed.

Beijing had said it would end sales from its reserves in late July, but traders believe it is likely to continue selling into August and September as it needs to get rid of old inventory ahead of the upcoming harvest in October.

Of the 9.55 million tonnes of cotton up for sale since January this year, only 28 percent, or 2.65 million tonnes, was sold by 3 July, with mills put off by high prices and poor quality.

China's tight control on cotton imports has triggered a surge in imports of cotton yarn, which is not subject to high import duties.

The yarn imports have replaced some demand for imported cotton fibre, which fell 17 percent in the first five months of this year compared with 2012 to 2.1 million tonnes.
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