China's cotton imports are expected to climb sharply in the summer months, after a government policy to spur demand for domestic cotton halved imports in the first five months of the year, analysts said on Monday.
China's cotton imports fell 55 percent in the first five months of this year, to 920,000 tonnes, thanks to a policy of taxing imports to keep domestic output competitive. As a result, domestic stocks have been drawn down sharply, driving up futures prices on the Zhengzhou exchange by 3 percent since the beginning of this month.
"We estimate a cotton deficit of about 2 million tonnes, so in the next three months China will have to make that up," said Li Hue, domestic market manager at the China Cotton Association. China imported 3.64 million tonnes of cotton in 2006, a rise of 42 percent, thanks to growing demand from its yarns, fabric and textiles sectors.
Beijing has issued 3.494 million tonnes of import quotas in calendar year 2007, but more than half have yet to be used, as domestic prices stayed below import costs of about 13,100 yuan ($1,718) a tonne.
July futures in Zhengzhou closed on Monday at 13,880 yuan, up 115 yuan. "The government has succeeded in its goal of protecting the domestic producers," said analyst Dong Shuangwei, of Capital Futures Co Ltd.
"Imports in June should be up, by maybe 200,000 tonnes or so, but the main increase we expect in July and August." China imported 201,000 tonnes of cotton in May, a drop of 57 percent from the same month the year before. "As supply from domestic sources diminishes, we forecast imports will pick up from June on," the National Development and Reform Commission said in a recent sector report.
"We still face quite a lot of difficulties and problems to achieve stable development of grain production for the whole year," Agriculture Minister Sun Zhengcai said during an inspection trip to the northern province of Hebei, a major wheat-producing region.
He mentioned drought in corn-growing areas in the north, and flooding in rice areas in the south. Unfavourable weather has helped cut the country's winter crop, including rapeseed. Some industry officials estimated the 2007 rapeseed crop might have shrunk to less than 9 million tonnes from 12.7 million tonnes last year.
But winter wheat output is expected to rise 0.3 percent to 99.60 million tonnes, despite drought, state-owned China National Grain and Oils Information Centre (CNGOIC) said this month, citing better-than-usual yields.