China, the world's top cotton user, plans to issue extra quotas of 500,000 to a million tonnes in 2004 to fuel ravenous demand from the textile sector, traders and industry officials said on Monday.
Swirling market talk that China had planned to issue the extra quotas - separate from the 894,000 tonnes of low-duty import quotas given out for this year under WTO commitments - helped lift world prices late last week, they said.
"We heard that the government was going to hand out extra quotas for this year, though it's still unclear exactly how much and when," an official with the Cotton and Jute Bureau, one of the industry's key overseers, told Reuters.
"It's already March now, so the quotas should be given out quite soon because domestic cotton prices are so high. That has been pretty tough for the textile industry," the official said.
Government officials were not immediately available for comment.
China's textile firms prefer to buy foreign cotton as domestic prices have been strong, quoted at 17,000 yuan ($2,054) a tonne due to brisk demand and lacklustre domestic output, traders said.
EXPENSIVE DOMESTIC COTTON: China last year issued half a million tonnes of cotton import quotas in addition to the 856,250 tonnes issued under its World Trade Organisation agreement to cool domestic prices and rescue distressed textile firms from a supply squeeze.
"They've already done it last year. Demand for cotton is strong and the textile sector would want to purchase more from the global markets this year," the official said.
Despite a 20 percent increase in area, China's cotton output fell 0.9 percent year on year to 4.87 million tonnes when farmers reaped the crop last October.
With China's cotton demand seen at around 7.0 million tonnes in 2004 from 6.8 million last year, more import quotas would be needed to plug the shortfall, traders said.
Market talk on the extra quotas boosted the key May on the New York Cotton Exchange on Friday to 73.77 cents a lb, after a rise by the 3.00 cent limit to 73.16 cents on Thursday, traders said.
Traders in Asia said China might hold off buying for the time being, but not for long.
"The market's been a little stronger last week, so some buyers are sticking to the sidelines, but just for the time being. They'll start enquiring again soon," said a trader with a global trading firm.