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China's cotton storage policy impacts textile industry
Sep '13
The cotton purchase and storage policy put in place by the Chinese Government to protect the farmers has resulted in a huge difference between the domestic and international cotton prices, leading to shutdown of several small and medium sized cotton spinning businesses.
The high cost of raw material pushed up the domestic prices of yarn, and weaving firms were forced to opt for low-priced imported yarn. Some large enterprises, however, shifted to production of high value-added products to survive, but they are still struggling to earn profits.
This year, too, the China National Cotton Reserves Corporation launched the 2013 annual temporary purchase and storage of cotton from September 9. The temporary purchase price for this year is same as last year’s purchase price of 20,400 yuan/ton.
On September 13, the spot price of cotton on CCI Index 328 was 19,137 yuan/ton, while the international cotton price index Cotlook A price was 14,220 yuan/ton. Thus, there was a price difference of 4,917 yuan/ton.
This huge price difference directly hurts the competitiveness of cotton spinning enterprises, which naturally lost some orders. 
On the other hand, the domestic spinning mills in China are not free to choose imported cotton, as there is a cotton import quota system, which is parallel to the policy of temporary storage of cotton. However, the downstream weaving companies can freely import cotton yarn.
According to China Textile Industry Association president Wang Tiankai, China’s present policy on cotton has three direct consequences. First, spinning mills use less cotton and increase the proportion of chemical fibre and other blended products. Second, large quantities of cotton and cotton yarn from India and Pakistan continue to enter the domestic market. Third, it leads to the shutdown of small and medium enterprises, making migrant workers jobless.

Fibre2fashion News Desk - India

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