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Market in panic - Export tax rebate may be cut
Mar '11
As per widespread rumors, the Chinese Government is expected to lower import tariffs and cut textile export tax rebate. Due to these rumors, the market was caught in a panic, resulting in prices falling on Monday.

As per rumors, the tax rebate rate of textile and garment exports may be reduced by 3-5 percent. At present, domestic textile enterprises of China are mainly export-oriented and domestic consumption is relatively negligible. In this situation, if tax rebate is lowered, it will have a greater impact on prices of cotton and PTA.

Other rumors were regarding changes in import duty structure. There were rumors in the market that the state would allow duty-free import of cotton, maize, soybean and oil.

Although none of these rumors have been confirmed by the authorities, market responded to it, creating further downfall.

If the state lowers tax rebates on exports, advantage of export prices will be lost, resulting in lesser profits for corporate sector. Not only that, but it will affect price competitiveness and will reduce consumption of cotton and chemical fiber. Indirectly, it will reduce PTA consumption too

At present, even without cut down in tax rebate rates, consumption of inventory cycle has been insufficient to support current prices. In this situation, lowering tax rate will have an adverse effect.

In Chinese domestic markets, cotton prices have shown downward trend after registering highest level of 34,870 Yuan / ton. Actually the market has entered dull phase due to continuous decline in cotton prices after that.

In textile industry, there is a consensus that the global cotton planting area will increase this year. But Chinese downstream cotton-related enterprises face inventory pressure due to poor product sales and continuous fall in spot prices. As per recent indications, Zhengzhou cotton futures may continue a weak trend and it will affect the market too.

Fibre2fashion News Desk - China

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