China cotton importers in no rush to fill new quotas

Chinese cotton importers, wary after rushing to buy highly priced bales in 2004, will steer clear of international markets for now, even though a new batch of import licenses will be available this month, traders said. Beijing is expected to issue a second round of import quotas in March totalling 500,000 to 1 million tonnes. Import licenses for 894,000 tonnes were issued in January. But buyers would be anxious to avoid a repeat of last year, when Chinese importers booked cargoes at the market's peak.
Prices subsequently crashed once it became clear the 2004 harvest would be stronger than expected.
"Even though the market is steadier this year, textile mills are careful about buying," said a Beijing-based trader with a state importer.
"They won't order big batches; they prefer to order one month at a time." Domestic prices for Grade cotton inched up to 12,554 yuan ($1,516) a tonne on Friday, from under 12,000 yuan before the Lunar New Year holiday in mid-February.
Domestic textile producers had been expected to benefit from the removal of US clothing import quotas in 2005. But export tariffs imposed by the Chinese government have clouded an otherwise rosy picture.
Export duties are eating into profit margins for low-end textile exporters, Beijing Cotton Outlook Consulting said on its Website (www.cottonchina.org), citing customs data. Duties are assessed by item and have a proportionally greater impact on cheaper goods.
Cotton importers are not the only ones to have absorbed the lessons of last year. Soaring prices in the spring crashed later in the year due to a record harvest, leaving textile mills stuck with high-priced cargoes contracted in the year.
Some of China's cotton farmers have switched to wheat, since the prices they received for cotton in the fall of 2004 fell short of expectations. Acreages planted with cotton could fall by 10 to 20 percent this year compared to 2004, the China Daily reported last week.
China harvested 6.32 million tonnes of cotton in 2004, up 30 percent from 2003.