Chinese cotton producers face grim prospects
The price gap between locally produced and imported cotton in China has been widening, and this factor are weakening the international competitiveness of the China's textile and garment industry.
The price difference between domestic and imported cotton is normally 1,000 yuan ($157) per ton but the gap has widened to an unprecedented level of more than 5,000 yuan now, putting pressure on local textile mills and garment industry.
The average price of domestic cotton was 19,525 yuan per ton in June, almost 5,400 yuan higher than the price of imported cotton which stood at 14,207 yuan per ton in the same period, according to China Cotton Association (CCA).
China's garment industry has been sluggish in the first two quarters of this year, with garment exports in Wenzhou, Zhejiang Province dropping by 30 to 50%.
"The widening price gap between domestic and imported cotton and rising labor costs makes China's cotton producers less competitive compared to the companies in other countries such as Bangladesh.
Meanwhile, stockpiles in Chinese bonded warehouses are swelling, partly because trading firms have stepped up imports since the end of last year, hoping to profit from arbitrage. However, demand from textile mills is too low to digest the stocks.
The State's cotton reserve policy has somehow aggravated the difference between the domestic and imported cotton prices and affected the textile industry in the short term.
Last year, the State Council of China approved a plan to stockpile domestic cotton as a way to stabilize domestic prices to protect farmers. The government is likely to issue more import quotas to help the textile industry get out of the mire.
Imports in the current cotton marketing year (September 2011 to August 2012) are expected to exceed 4.5 million tons, State cotton reserves likely to reach 3.1 million tons while cotton consumption may hit 9 million tons.
To stockpile domestic cotton as reserve could benefit cotton farmers while raising import quotas could benefit textile mills. The government is actually seeking ways all the time to balance between the two industrial chains.
You may be interested in:
2012 China Cotton Industry Development Analysis and Forecast Report
2012 China Cotton Market Depth Survey Report