Cotton import quota may come

China is considering issuing an import quota and selling some of its cotton inventory, a move analysts described Saturday as a tradeoff that would protect farmers' interests while allowing textile companies in the world's largest cotton consumer and importer to buy some foreign cotton at lower prices.

"We have heard from textile mills that local official sectors have notified them that they might be able to get a one-ton import quota if they buy three tons of State Reserves," Wang Lu, a researcher at cottonchina.org, told the Global Times Saturday.

Wang said that the information is not confirmed, pending official notice from the National Development and Reform Commission (NDRC).

Cottonchina.org is a cotton market information provider under the China Cotton Association, the China National Cotton Exchange and Cotlook Ltd, and is the first to get and distribute official sales notices about State Reserve cotton from the NDRC.

China's State Reserve has bought 5.14 million tons of cotton since September 10, 2012, 65 percent more than the reserve for all of 2011, bringing the total reserve to 7.29 million tons as of December 27, the NDRC said in a statement on December 28.

By March of this year, China is expected to accumulate some 8 million tons of cotton, equal to a third of total global output in 2012-13 and enough to supply China's mills with raw material for a year.

The NDRC said in a separate statement that it would auction an unspecified amount of cotton from its record-sized reserve but gave no further details.

Due to sluggish global demand for textile products, cotton prices dropped substantially in 2012. Yet to protect domestic cotton farmers' interests and ensure output next year, the State Reserve bought cotton at about 20,400 yuan ($3,290) per ton, higher than 2012's domestic market price.

Because of the higher prices, a majority of cotton is sold to the State Reserve, which is why the reserve stockpile goes up rapidly. Imported cotton tends to have the lowest price, followed by China's domestic market price, with the State Reserve price coming highest.

The State Reserve will most likely sell its cotton at the current market price and suffer a loss, Wang Yong, a cotton analyst at Hongyuan Futures, told the Global Times Saturday.

"Textile companies yearn for cheaper foreign cotton, which sells at about 14,000 yuan per ton compared with the domestic 19,000 yuan per ton," Wang said.

Due to the import quota, however, textile mills cannot import as much foreign cotton as they wish.

If the mills buy three tons of State Reserve and one ton of imported cotton, it will make the average cost 17,750 yuan per ton, lower than the domestic market price but still higher than the import price.

This condition is not as attractive as one ton or two tons of State Reserve cotton in exchange for a one-ton import quota, Wang said.