China's cotton textile mills might be hit hard, incase cotton prices harden next year, due to continued cotton purchases by the government and a fall in cotton crop acreage.
The government has recently amended the sliding tax imposed on cotton and will also continue to impose the tax on certain quantities imported outside tariff quotas from 2012.
After implementation of the new sliding tax policy, import cost will be unchanged if NY cotton futures price stays below 50 cents / lb. But costs could rise if NY cotton futures price increase in the near future.
Cotton price has been declining since March this year and they have plunged by as much as 40 percent on the Zhengzhou Commodity Exchange.
The market does not have much high-quality cotton for consumption of domestic textile mills, due to active cotton procurement by the Government to support domestic price.
As of Friday, the government had purchased 1.62 million tons cotton from farmers. Analysts predict that government's purchase will reach 2.5-3.0 million tons, accounting for 35-42 percent of 2011-12 production.
Import quota for 2012 stands at 894,000 tons, which will attract a duty of one percent. In addition, the government approves a certain number of import quota under sliding tax every year, the sliding tax rate is from 5 percent to 40 percent.
Fibre2fashion News Desk - China