China, the world's top cotton consumer, is unlikely to seal big orders on global markets in coming months as users turn to cheaper domestic sources, industry sources said on Friday.
But the weather could turn things around, an official said. The world's top garment exporter may be forced to return to international markets if the harvest is hit by the rain that walloped the crop last September.
"If the weather turns bad, like the excess rains we had in September last year, then that's another story," said an official at the Cotton and Jute Bureau.
Cotton users have stayed away from the markets in recent months because domestic prices have fallen around 10 percent over the past few months to 14,800 yuan ($1,788) a tonne, hit by huge arrivals, an expected bumper crop and economic curbs.
Traders said domestic prices were actually lower now than on global markets, once handling costs were taken into account.
"We're just sitting around to wait and see how things develop in the next month or so," said a trader in Shanghai.
"If there is any gap to be filled, they (orders) will be fairly small. There've been inquiries on a few hundred tonnes here and there - nothing of significance," he added. The Chinese crop is typically more expensive than imported cotton, but domestic prices have eased in past months to levels that roughly match global prices, traders said.
"Domestic cotton is cheaper if you factor in cost of freight and other duties of imported cotton. So why buy?" said another trader in Beijing.
One trader said low-duty cotton quotas had been sold on the black market for 600-700 yuan a tonne since a few months ago. But now there were few takers even when offered at 200-300 yuan.
China issued additional low-duty quotas for one million tonnes, on top of the 894,000 tonnes stipulated by World Trade Organisation agreements, for this year to meet growing demand in the world's garment factory.
The country imported 1.03 million tonnes of cotton, up 305 percent year on year, from January to April, custom figures showed. But the pace is likely to slow in the next month or two, some traders said.
"At this rate, I don't think this year's quotas will be used up entirely," a third trader in Beijing said.
China is expected to be hit in the short term by a government drive to curb excess lending as part of efforts to gently slow the fast-growing economy.
"There may be a shortage of high-grade cotton between now and the new crop. Consumption seems to be running quite well, but it may slow down in the next couple of months as credit availability continues to tighten," the first trader said.
China's cotton output would hit about six million tonnes, off a low 4.87 million tonnes in 2003, said the official with the Cotton and Jute Bureau.
But demand far exceeds that at about 7.9 million tonnes. The country plugs that deficit via imports and stocks.
This year's cotton crop acreage increased to 5.5-5.7 million hectares, the official said, despite plans to cap acreage at around 5.3 million hectares and output at 5.8 million tonnes, to get farmers to plant more grain.
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