Picture: TRISHA DOWNING/UPSPLASH
Picture: TRISHA DOWNING/UPSPLASH

Beijing — China is set to boost its imports of cotton by issuing additional import quotas to mills, said the China Cotton Association on Monday, a move seen by the market as another step towards meeting the demands of top exporter the US.

The association, which lobbies the government on behalf of cotton farmers and processors, said the soon-to-be-released additional quotas were one of the measures the government was taking to help ease recent market volatility.

China, once the world’s top cotton importer, has seen imports shrink from more than 5-million tonnes in 2011-12 to about 1-million tonnes in 2017, due to efforts to reduce state stockpiles. After several years of auctions to lower state stocks and with demand recovering, the market has become concerned about supplies. China’s domestic cotton futures have rallied nearly 18% since early April, fuelled in part by worries over crop damage from heavy rains, as well as by speculation.

American farm goods

Traders said China’s move, however, was more likely related to pressure from the US for higher imports of American farm goods.

"It’s definitely related to trade talks," said a China-based trader with an international firm.

The US and China have threatened tit-for-tat tariffs on goods worth up to $150bn each, as US President Donald Trump has pushed Beijing to open its economy further and address America’s large trade deficit with China.

China has agreed to significantly increase purchases of US goods and services, though talks at the weekend yielded no public statement on agreements. The US is China’s top overseas supplier. It shipped about 500,000t to China in 2017, making cotton the third-most valuable US farm export, after soybeans and hides and skins.

But China has restricted its imports since 2014, offering only the 894,000t in tariff-rate quotas it must allocate as part of its commitments to the World Trade Organisation.

Additional quotas with sliding tariff rates issued before 2014 were halted to get rid of huge state stocks. Total imports in 2017 were 1.16-million tonnes. It wasn’t clear when the new quota would be released or how much would be offered, though the international firm’s trader said he expected at least 500,000t.

That would help buyers bring in large consignments of US cotton sitting in China’s bonded zones, he said, though it could also benefit purchases of fibre from growers such as India.

"There’s not too much US cotton available right now, but I don’t think senior officials consider this," he said.

Speculation

Despite the move to boost imports, the China Cotton Association said supplies were "basically sufficient", and that "abnormal fluctuations in the market are influenced by speculation and other factors".

China’s cotton output in 2018 is expected to remain stable, with weather disasters about the same as in previous years, the association said.

Bad weather came "relatively early" as well, reducing any impact on yield, it said.

Its comments came after concerns about hailstorms and heavy rain in top producing region Xinjiang drove prices higher.

, even as some traders warned the weather would have a relatively small impact.

It also said commercial inventories were about 2.87-million tonnes at end-April, about 1-million tonnes higher than the same time last year.

And while cotton demand has been steadily rising this year, there is limited room for growth.

It also said the state sales could be extended to end-September if market supplies were insufficient, and it urged the government to strengthen supervision of the futures market and prevent speculation from impacting the sector.

The China National Cotton Reserves Corporation, which manages China’s state cotton stockpiles, said earlier it would restrict purchasing at its daily auctions to textile manufacturers from Monday, according to a statement from the company.

Reuters