China is still stuck with a huge stockpile of domestic cotton bought at support prices. The government has grudgingly issued more import quotas but most quotas are given to companies who agree to export their final products or buy expensive cotton from state reserves.
According to Chinese textile industry reports, China's National Development and Reform Commission (NDRC) will soon announce an additional cotton import quota of 400,000 metric tons. This will bring the total quota issued for the market year to 2.8 million metric tons. According to one factory manager, new quota has already been issued to some textile mills. The quota is reportedly for purchases of cotton already in bonded warehouses at Chinese ports. Traders estimate 700,000-to-800,000 metric tons of cotton in these warehouses, but the supply of cotton in the market is tight.
On April 10, the NDRC announced its temporary reserve policy for the 2013/14 market year (about a month later than in the last two years). The minimum reserve purchase price for next fall's cotton harvest will be held steady at 20,400 yuan/mt. According to a futures market analysis, the support price is below the market's expectations and cotton prices are weak. However, the price is still far above the price of imported cotton.
Government reserve purchases amounted to 87 percent of the 2012/13 Chinese cotton crop. The supply of cotton in China now consists of auctions from the reserve and a limited amount of cheaper imported cotton. NDRC says they hope to auction off 4.5 million metric tons of reserve cotton by the end of July. According to the futures analysis, this may be difficult to achieve with monthly cotton consumption about 650,000 mt per month. According to this April 10 analysis, the government "controlled" the distribution of tariff rate quotas to prevent "low-price" imported cotton from pressuring the domestic market. Although there had been a slight uptick in auction sales, the proportion sold is still low.
Imported cotton is estimated to be priced 4000 yuan/mt less than domestic cotton. China's cotton imports during March 2013 totaled 528,800 metric tons. That brings the cumulative total imports for the 2012/13 market year to over 3 million metric tons (mmt). According to the futures market analysis, "everyone" expects China's cotton imports to exceed USDA's estimate of 3.6 mmt.
Upon WTO accession, China agreed to a tariff rate quota for cotton of 894,000 mt annually, but additional "sliding scale" quota is announced nearly every year. According to a March 2013 report, NDRC had issued more quota but the amount was not announced. Most of the additional quota was reportedly for "processing trade" for which a textile firm must have a contract to export finished products before it can receive a cotton import quota. It is also rumored that quota awards are linked to purchases of auctioned domestic cotton at a 3:1 ratio.
An April 12 report from Dezhou, Shandong Province, confirms this, saying that textile mills in that district received 15,700 mt of "processing trade" quota and only 1,500 mt of "general trade" cotton import quota. The article also notes that NDRC "adjusted" the quota distribution system this year, awarding 1 ton of import quota for every 3 tons of state reserves purchased. The Dezhou NDRC was described as energetically guiding companies to participate in cotton auctions. The report implies that seven companies were added to the import quota distribution list because they bought reserve cotton at the auctions.
According to Chinese textile industry reports, China's National Development and Reform Commission (NDRC) will soon announce an additional cotton import quota of 400,000 metric tons. This will bring the total quota issued for the market year to 2.8 million metric tons. According to one factory manager, new quota has already been issued to some textile mills. The quota is reportedly for purchases of cotton already in bonded warehouses at Chinese ports. Traders estimate 700,000-to-800,000 metric tons of cotton in these warehouses, but the supply of cotton in the market is tight.
On April 10, the NDRC announced its temporary reserve policy for the 2013/14 market year (about a month later than in the last two years). The minimum reserve purchase price for next fall's cotton harvest will be held steady at 20,400 yuan/mt. According to a futures market analysis, the support price is below the market's expectations and cotton prices are weak. However, the price is still far above the price of imported cotton.
Government reserve purchases amounted to 87 percent of the 2012/13 Chinese cotton crop. The supply of cotton in China now consists of auctions from the reserve and a limited amount of cheaper imported cotton. NDRC says they hope to auction off 4.5 million metric tons of reserve cotton by the end of July. According to the futures analysis, this may be difficult to achieve with monthly cotton consumption about 650,000 mt per month. According to this April 10 analysis, the government "controlled" the distribution of tariff rate quotas to prevent "low-price" imported cotton from pressuring the domestic market. Although there had been a slight uptick in auction sales, the proportion sold is still low.
Imported cotton is estimated to be priced 4000 yuan/mt less than domestic cotton. China's cotton imports during March 2013 totaled 528,800 metric tons. That brings the cumulative total imports for the 2012/13 market year to over 3 million metric tons (mmt). According to the futures market analysis, "everyone" expects China's cotton imports to exceed USDA's estimate of 3.6 mmt.
Upon WTO accession, China agreed to a tariff rate quota for cotton of 894,000 mt annually, but additional "sliding scale" quota is announced nearly every year. According to a March 2013 report, NDRC had issued more quota but the amount was not announced. Most of the additional quota was reportedly for "processing trade" for which a textile firm must have a contract to export finished products before it can receive a cotton import quota. It is also rumored that quota awards are linked to purchases of auctioned domestic cotton at a 3:1 ratio.
An April 12 report from Dezhou, Shandong Province, confirms this, saying that textile mills in that district received 15,700 mt of "processing trade" quota and only 1,500 mt of "general trade" cotton import quota. The article also notes that NDRC "adjusted" the quota distribution system this year, awarding 1 ton of import quota for every 3 tons of state reserves purchased. The Dezhou NDRC was described as energetically guiding companies to participate in cotton auctions. The report implies that seven companies were added to the import quota distribution list because they bought reserve cotton at the auctions.
Comments