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Cotton stocks at record high

By Wang Xinyuan (Global Times)

08:04, June 25, 2012

Inventories of imported cotton have hit a record high in China's largest port for cotton imports, and traders are suffering from falling prices and slumping demand from the downstream textile industry, experts said yesterday.

The inventory of imported cotton rose to more than 700,000 tons in Huangdao port in Qingdao, Shandong Province, China's main port for receiving cotton, the Xinhua News Agency reported over the weekend.

The price of cotton hit a record high at above 30,000 yuan ($4,713) per ton in March 2011 but has dropped sharply to 18,000 to 19,000 yuan per ton at the moment, even below the reserve price that the State offers to buy cotton from farmers, Guo Jianying, an agriculture analyst with Guan Tong Futures Brokerage, told the Global Times yesterday.

The inventory level is almost double that of April, Xinhua reported, noting that cotton stockpiled last year has not yet been sold. Due to sliding prices, cotton traders are suffering losses of at least 3,000 yuan per ton, Xinhua said in the report.

The high cotton inventory is partly attributable to the slump in demand from the downstream textile industry, as the domestic and external markets for apparel and textile products remains sluggish amid China's economic slowdown and the debt crisis in Europe, Guo said.

To protect the interests of cotton farmers and encourage them to plant cotton, the State buys cotton from farmers each year for reserve purposes.

The State reserve price was 19,800 yuan per ton in 2011, rising to 20,400 yuan this year. Many traders bet the market price would not be lower than the reserve price, so they started stockpiling cotton in the hope that the price would rebound, but the market proved them wrong, said Guo.

The price of imported cotton is on average 3,000 to 5,000 yuan cheaper than the domestic price, which is why imported cotton is stockpiled, said Zhang Wenmin, general manager of the Cotton Business Unit with Zhengzhou-based Wonder Futures.

The global supply is abundant this year but demand is weak due to the sluggish economy, and cotton producers such as India, the US and Australia all aim to increase their cotton exports to China, Zhang said.

The State reserve of cotton has reached 4.4-4.5 million tons, and China is expected to produce 6.4-6.5 million tons of new cotton this year, he noted.

Compared with Indian farmers, China's cotton farmers face high costs of production, mainly due to rising labor costs, Zhang said.

In May, China released an import quota of 1 million tons of cotton. The increasing supply and the high level of inventory will further push down the prices, and it remains unclear when the downstream market will rebound, he noted.

Due to oversupply and weak demand, the State reserve is unlikely to sell more cotton into the market, but as the harvest season for new cotton is coming, the State reserve has limited capacity to take in more cotton.

Meanwhile, because warehouse capacity in Qingdao is nearly used up, many traders and importers are considering other ports in Shandong or Jiangsu province despite the higher transportation costs, according to texindex.com, a textile information provider.

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