China's textile mills may experience high cotton prices in 2011

Next year, China's cotton factory may experience higher cotton prices because the government continues to purchase cotton from the market, and the cultivated area of ​​cotton shrinks, industry sources said.

The adjustment of tariff quotas on imported cotton tariffs will also increase the cost of factories that require high-quality cotton, industry sources said.

The deputy general manager of one of China's top 10 textile groups said: “We have no choice but to accept higher prices.” Their company is still consuming cotton that was bought when cotton prices were high.

As of Friday, the government purchased 1.62 million tons of cotton from cotton farmers. Analysts expect that the government’s cotton purchasing power will reach 2.5-3 million tons, accounting for 35-42% of the 2011 National Development and Reform Commission’s estimated cotton production.

The government’s purchase price for cotton reached 19,800 yuan (US$3,100) per ton. Some analysts said that the government could not sell cotton without obtaining a profit of RMB2,000-3,000/ton.

China has issued 894,000 tons of annual cotton import quotas, and the tariff level has reached 1%. In addition, the tariff quotas for non-exact cotton are subject to a tariff rate ranging from 5 to 40%.

Last week, the government adjusted the calculation method for the sliding tariff in 2012. According to the new calculation method, the price of New York cotton is lower than 50 cents/lb or more than 100 cents/lb, and the import cost will not change. However, if the quota is between 50-100 cents/lb, the import cost will increase by 512 yuan/ton, according to the calculation of the industrial website.

According to this new calculation method, the government hopes to reduce the impact of low global cotton prices on local prices.

The shrinking demand for textiles and higher planting costs have also depressed the interest of cotton farmers and made them reluctant to grow cotton.