China has defaulted on cotton purchases from Australia because of the country's credit squeeze and the collapse in world cotton prices, Australian industry leaders said on Friday.
Australian cotton shipments were building up at Chinese ports as importers refused to pay for contracted supplies, they said. "There's a stockpile of cotton in China ports and elsewhere around the world where payment has not been made and shipment has not been achieved," Bob Bell, chief executive officer of major Australian producer Naomi Cotton Co-operative Ltd, told Reuters on Friday.
Industry leaders were unable to estimate how much Australian cotton had been caught up in dishonoured contracts by China as part of its dumping of deals struck last year before China's credit squeeze, which deepened the fall in world cotton prices.
"The situation is still continuing," Bell said. Other Australian cotton industry leaders have complained of delays and possible China defaults.
"Australian shippers have seen a lot of delays and certainly some members have recorded situations that now appear to be a default," Gordon Cherry, chairman of the Australian Cotton Shippers Association, was quoted as saying in Australia's The Land newspaper on Friday.
Cherry was not immediately available for further comment. However, pressures appeared to be easing slightly with announcements by the Chinese government that it was loosening credit restrictions in the textile industry, Name's Bell said.
Plans by the Chinese government to purchase cotton to replenish reserves could further ease tensions, although exporters were concerned over whether this would be from China's own new cotton crop or from imports, he said.
Reuters reported from Shanghai on Tuesday that the Chinese government was likely to buy about 300,000 tonnes of cotton in a bid to prop up flagging prices and lift farmer's incomes.
Low cotton prices in China were hitting farmers' incomes and forcing defaults on huge orders of imported cotton, Shanghai traders were quoted as saying.
But exporters' concerns were being reinforced by a continuing slide in world cotton prices, Name's Bell said. The key December cotton futures contract fell by a further 1.16 US cents to 47.02 US cents a pound on Thursday on the New York exchange, continuing cotton's collapse from over 70 US cents a pound last October.
"The worry is that people who have unsold cotton that may have been considering China as a market may not be able to access that market," Bell said. Australian cotton exports to China are normally worth around A$100 million ($72 million) a year from total exports of normally more than A$1 billion a year.
Australian cotton exporter lack remedies to redress China's defaults or its slow acceptance of shipped cotton, traders said. The United States is registering delayed contracts and some Australian exporters may be making submissions to this.
But US action could be limited to political pressure, possibly through the World Trade Organisation, they said. "Counterparts risk is something we have to all manage," Name's Bell added.
Australia is the world's third largest cotton exporter, after the United States and Uzbekistan.