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Cotton producers face grim prospects

By Song Shengxia  (Global Times)

08:05, July 04, 2012

The price gap between locally produced and imported cotton in China has been widening, weakening the international competitiveness of the country's textile and garment industry, industrial bodies and analysts said Tuesday.

"The price difference between domestic and imported cotton is normally 1,000 yuan ($157) per ton but the gap has widened to an unprecedented level of more than 5,000 yuan now, putting pressure on local textile mills and garment industry," Wang Qianjin, a senior analyst from webtex.com, an information provider for the textile sector, told the Global Times Tuesday.

The average price of domestic cotton was 19,525 yuan per ton in June, almost 5,400 yuan higher than the price of imported cotton which stood at 14,207 yuan per ton in the same period, data released by the China Cotton Association (CCA) on Friday showed.

Zheng Chen'ai, chairman of the Wenzhou Chamber of Garment Industry, told the Global Times the garment industry has been sluggish in the first two quarters of the year, with garment exports in Wenzhou, Zhejiang Province dropping by 30 to 50 percent.

"The widening price gap between domestic and imported cotton and rising labor costs makes us less competitive compared to companies in other countries such as Bangladesh," he said.

Meanwhile, stockpiles in Chinese bonded warehouses are swelling, partly because trading firms have stepped up imports since the end of last year, hoping to profit from arbitrage. However, demand from textile mills is too low to digest the stocks.

"Previously, a bonded cotton stock of 10,000 tons would be considered excessive but now it's very common for traders to have more than 50,000 tons of bonded stocks, with some reaching 100,000 tons," Liu Ming, a manager in charge of cotton at Qingdao Jinyu Logistics Company in Qingdao Bonded Area, told the Global Times.

"The State's cotton reserve policy has somehow aggravated the difference between the domestic and imported cotton prices and affected the textile industry in the short term," Wang from webtex.com said.

Last year, the State Council approved a plan to stockpile domestic cotton as a way to stabilize domestic prices to protect farmers.

Wang said the government is likely to issue more import quotas to help the textile industry get out of the mire.

Imports in the current cotton marketing year (September 2011 to August 2012) are expected to exceed 4.5 million tons, State cotton reserves likely to reach 3.1 million tons while cotton consumption may hit 9 million tons, Gao Fang, secretary-general of the CCA said.

"To stockpile domestic cotton as reserve could benefit cotton farmers while raising import quotas could benefit textile mills. The government is actually seeking ways all the time to balance between the two industrial chains," Wang said.

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