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Will China's appetite for cotton imports fall in 2012-13?

18
Aug '12
The key question on everybody lips involved in the cotton trade across the globe is whether China will continue to show the appetite to purchase cotton in the 2012-13 season, the way it has aggressively done so in the past few months. A source in the China Cotton Association informed fibre2fashion that the state cotton reserves have touched a massive 7 million tons as of July-end.

Taking in to account cotton stocks lying in bonded warehouses and those with spinners, ginners and traders, the overall Chinese cotton inventory could be around 10-11 million tons. This is more than what China consumes annually. Also considering that Chinese cotton output is expected to rise 6 percent from 2011-12 cotton season to 6.99 million tons in the 2012-13 season, is there space for China to buy more cotton.

“Yes”, says Mr Anand Popat, Secretary of the Saurashtra Ginners Association (SGA).

He explained, “Everybody around the globe involved in the cotton trade is trying to understand the policy of China in carrying such huge cotton inventories. However as per my understanding, the cotton reserves are a long term policy and as a policy, China is investing in cotton stocks instead of keeping its huge foreign exchange reserves in the US dollar.     

“The Chinese government has created reserves not for liquidation, but to stock. If the Chinese government was to start liquidating the cotton stocks, global cotton prices may collapse, which would work against the interests of the Chinese cotton farmers, which the government is trying to support by creating such hugh reserves.

“But if it were to keep on adding stocks it would provide momentum to global cotton prices. As per my estimate, I feel that China will continue to purchase cotton in the new season, but not at the same frantic pace witnessed in the last few months, albeit, a little slower. However nothing can be predicted at this juncture”.

When quizzed if Indian cotton exports to China will maintain the same volume, he said, “Cotton output is expected to rise in China by 6 percent and also grow in other countries like Pakistan, US, and many other cotton growing countries, except India, where it is anticipated to decline.  So, I do not see Indian cotton exports to China in the 2012-13 season reaching those levels attained in the current cotton season”.

“Looking at this scenario, I am personally in favour of continuing the Open General License (OGL) of cotton exports from India. As it is, under an OGL rider, a cotton exporter practically cannot export more than 10,000 bales (1 bale = 170 kg) of cotton per season. Instead, I would suggest the government increase the number of bales an exporter can export to around 25,000 bales”, he concluded by saying.  

Fibre2fashion News Desk - India


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