The new Chinese cotton policy has the potential to derail Indian raw cotton exports to the biggest cotton consuming country in the world.
As per the new policy to be made applicable from April 1, the Chinese government has lowered cotton auction bids to 17,250 Yuan per ton, down 4.2 percent from its current floor price of 18,000 Yuan per ton, a move which can only stymie Chinese demand for Indian raw cotton.
The new policy also mandates that Chinese buyers, who buy four bales from the state cotton reserve, will be permitted to import only one bale of raw cotton at concessional duty rates. In the policy released last year, the ratio was 3:1.
“In anticipation of the new cotton policy, Chinese cotton buyers had already scaled down purchases in the last two months. However, the impact will be mainly felt by other cotton exporting countries rather than India”, Mr Vishwanathan, Secretary of Indian Cotton Federation told fibre2fashion.
He continues, “Since India by itself consumes a good volume of cotton, so even if the Chinese cut down on their imports, there will not be a big impact on the Indian cotton industry. Nor do I see any impact on Indian cotton prices”.
“China has also added imported cotton to its reserves and if the buyers do not have to pay import duty on this imported cotton, it could mean lesser demand for Indian cotton”, Mr Anand Popat, Secretary of Saurashtra Ginners Association, informs.
He adds, “At the same time, if Chinese importers do not have to pay duty on the one bale that they are allowed to import on the four bales that they purchase from reserves, then I do not anticipate any fall in demand for Indian cotton”.
According to a recent USDA estimate, China will hold 60% of the global cotton stocks by the end of the 2013-14 cotton season, which is equivalent to 163% of its annual consumption. Correspondingly, India the second biggest consumer of cotton will hold only 11% of global cotton stocks, the report adds.
