Beijing. China will likely issue additional cotton import quotas totaling 1 million metric tons in May to help textile mills, who will welcome the relatively less expensive fiber from overseas, cotton traders and analysts said Friday.
The country was heard to have issued 1.5 million tons of import quotas at the start of the year, including 894,000 tons under a 1% tariff. Cotton imports beyond the quota are subject to a sliding tax rate ranging from 5% to 40%.
“I think government will issue [the additional quotas] in May, as the conditions are now ripe to do so,” an executive with a Shandong cotton trading firm said, adding farmers have already established planting plans and textile firms are facing narrow margins.
Domestic cotton prices are around CNY20,000/ton, about 20% higher than global market prices thanks to a government stockpiling program.
An official with the National Development and Reform Commission, which manages quotas, said in April that Beijing would neither issue new quotas nor release state reserves if cotton prices are weak.
Beijing is worried that increased cotton imports would pressure domestic cotton prices and hurt farmers’ willingness to plant.
Even without additional quotas, China’s 2012 cotton acreage will likely fall 9.4% from a year earlier, according a China Cotton Association estimate.
The government’s reluctance to issue new quotas has resulted in record stocks of cotton in China’s bonded areas awaiting customs clearance.
More than 900,000 tons of the fiber, much of it from India, is in the bonded warehouses, Wonder Futures Co. analyst Du Ying said. With the warehouses around full capacity, fresh bookings at tariff-free zones are tapering off as global cotton exporters and intermediaries await Chinese buyers.
More than 60% of the cotton at Qingdao bonded areas is owned by major exporters Louis Dreyfus, Paul Reinhart and Allenberg Cotton Co., while the remainder belongs to Chinese firms who are awaiting import quotas so they can clear customs, a Qingdao-based cotton importer said.
Du said the NDRC will likely release some government reserves in July and August to meet market demand.
“The national stockpiler needs to clear some warehouses for new crops, and there is also demand from textile companies,” Du said.
Meanwhile, Beijing is likely to issue 500,000 tons to 1 million tons of import quotas soon, said Du, who added that the full-year quota cap is around 2.5 million tons.
China National Cotton Reserves Corporation is holding around 4.4 million tons of cotton in its warehouses, according to industry estimates