China plays down impact of huge cotton reserves, talk of yarn duty

Written by Reuters | Singapore | Updated: Mar 22 2013, 06:05am hrs
Chinese cotton industry officials downplayed the impact of the countrys ballooning reserves on Thursday, a day after prices in New York fell more than 2% on plans by China and fellow Asian giant India to sell down stockpiles of the fibre.

China's ambitious cotton stockpiling policy has driven up domestic prices, forcing the world's largest textile industry to raise yarn imports by as much as a third this year, while lower costs in southeast Asian spur producers there to lift output.

China is expected to sell about 3 million tonne of cotton this year from state reserves of around 10 million tonne while in India the ruling cabinet has yet to decide how much to sell in a dispersal expected to kick off from April.

But China's reserves would not pressure global markets, thanks to high domestic prices while WTO commitments make it impossible for the country to hike its import duty on yarn, Chinese industry officials said on Thursday.

Xi Jin, a manager at the government-funded China National Cotton Information Center, said Chinese state reserves would not weigh on the global market, which has seen prices in New York surge more than a fifth this year.

"I don't think it's a pressure. It's very expensive. I mean the auction price is much more expensive than the international cotton price," he told Reuters on Thursday at an industry conference in Singapore.

Cotton posted on Wednesday its biggest daily loss in two months, spurred by profit-taking over news of the sales by India and China, which derailed, at least temporarily, the commodity's longest bull run in two years.

That surge had carried prices to a one-year high of 93.93 cents a lb last week. Cotton has been the best-performing commodity this year, after two years of double-digit percentage declines.

"One of the reasons the Chinese policy is so disruptive is because it really is very opaque," said Terry Townsend, executive director of international farm group ICAC.

"We really have no idea what's going on in China."

Despite the decline, cotton is still about 50% more expensive in China's domestic market, pushing millers towards cheaper supplies from neighbouring countries.

Xi Jin at the China National Cotton Information Center, who pegged the domestic cotton auction price at 19,000 yuan ($3,100) per tonne, said, "China can't keep buying. The stocks are so high."

Speaking of the estimated stockpile of cotton, Xi Jin said, "As for 10 million tonne, I can't confirm that, but last year we purchased over 3 million tonne. This year, we purchased over 6 million tonne."

Cotton imports by China for the current season to July 2013 are estimated at more than 3 million tonne, he said.

But the country's textile mills are turning to neighbours, such as India and Pakistan, for cotton yarn. Yarn imports, unlike raw cotton, are free of Beijing's tough quota limits and are about 2,000 yuan ($160) per tonne cheaper than at home, traders have said.

"According to my understanding it is impossible to increase duties because WTO regulations don't allow us to do so," Robert Yang, an official of industry body the China National Textile Apparel Council, told Reuters through an interpreter.

India has about 2.5 million bales (425,000 tonne) of stocks and has faced calls from mills to sell down in order to cool soaring prices, which are near year-highs.

But India may also need to cut prices to attract buying from China, one Indian exporter said.

"Chinese stocks are way higher than their consumption and I do not expect them to buy from India unless we lower our offers to around 88 cents per pound," said Rahul Jitendra Shah, managing director of Acme International.