Mills in China have lowered their demand for imported cotton this year because of fears that Beijing will issue fewer import quotas this year. China is the world’s top buyer of cotton. For three years, the country was stockpiling program. Now it wants to encourage consumption of its huge domestic stockpile of fiber at the expense of imports.
Right now, its cotton reserves are about 12.7 million tons, equivalent to almost 60 per cent of global stocks. With so much in reserves, the government is unlikely to issue more import quotas. So there is a strong urge for Beijing to de-stock. Without offering quotas, demand at reserve sales would be tepid. Prices have dropped below 17,000 yuan per ton but that price is 17 per cent less than the reserve's current purchase price.
Imports of Indian cotton for instance are expected to fall from February. What happens next depends on whether China releases additional quotas in subsequent months. But China has already imported several thousand tons of cheap Indian cotton.
In the absence of sufficient import quotas, mills could turn to yarn instead. Imports of yarn are not restricted by quotas and are subject to low import duties.
