Australian cotton piles up in Chinese warehouses

Sydney/Beijing — Buyers including a state-owned Chinese company are stockpiling Australian cotton in Chinese warehouses, betting that a three-year ban on imports will soon be lifted as diplomatic and trade ties between Beijing and Canberra ease.

Chinese customs figures show that 43,364 tonnes of Australian cotton entered bonded warehouses in China in the first seven months of this year, more than double that for all of 2022. An additional 1,148 tonnes cleared customs.

State-owned China National Cotton Group Corporation is among the shippers, according to a trader not authorised to speak to the media who therefore declined to be named. The company could not be reached for comment.

“A few people are taking a punt and sending a little bit, but they’re big companies who can divert it elsewhere if needed,” said Adam Kay, head of industry group Cotton Australia. He would not name any traders shipping cotton to China.

China accounts typically for nearly a third of Australian trade. The cotton purchases follow a gradual easing by China of restrictions on Australian products such as coal and wine imposed in 2020 after Canberra called for an international inquiry into the origins of Covid-19.

Chinese mills were ordered to stop buying Australian cotton in October 2020.

Diplomatic exchanges ramped up after Australia elected the Labour government of Prime Minister Antony Albanese in May 2022. Since then, China lifted tariffs on Australian barley and resumed coal imports.

Cotton, copper, wine and hay remain subject to some form of restriction, but Australia shipped 19,767 tonnes of cotton worth about $41m to China in July, the most since December 2019 and a surge from previous months, according to Australian customs data from the UN’s Comtrade database.

From late 2020, when Chinese mills were verbally instructed to stop buying Australian cotton, to this July, Australia shipped about on average three tonnes of cotton to China monthly, according to customs figures.

“Merchants that I speak to are still shipping,” said an Australian trader who declined to be named due to not being authorised to speak to the media.

“Albanese’s announcement that he’s going to China keeps everyone hopeful,” he said. Albanese said this week he intends to go to Beijing this year, the first visit by an Australian leader since 2016.

Lower-than-expected production in the US may have also lifted demand for Australian cotton, said Edward McGeogh, an analyst at Rabobank in Australia.

Some Chinese companies appear to be using Australian cotton for orders from the US, which has banned cotton from China's northwest Xinjiang region due to concern about forced labour, said another Australian cotton trader who declined to be named, having no authority to speak to the media.

“More queries have been coming in from Chinese buyers,” said the trader.

Reuters