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China To Cut Price, Offer Better-Quality Cotton To Lower Reserves

Date 29-March-2014
Subject China To Cut Price, Offer Better-Quality Cotton To Lower Reserves

China said it is cutting the price of domestic cotton being sold from its state reserves and will offer 200,000 tonnes of higher-quality, imported fibre for bidding weekly, as the world's top cotton consumer steps up moves to cut its massive stockpile.

The moves could pressure cotton imports and prices, hitting top exporters India and the United States, which have already seen shipments drop by 7 and 47 percent, respectively in the first two months of this year.

From April 1, mills can bid as low as 17,250 yuan ($2,800)per tonne for standard-quality cotton in the daily state auction, below the current floor price of 18,000 yuan per tonne fixed in November, the China National Cotton Reserves Corporation said in a statement on Friday

Beijing is unwinding a stockpiling program aimed at supporting farmers as it switches to a subsidy-based program. The reserve is holding more than 10 million tonnes of cotton, equal to about 60 percent of global stocks and sufficient for more than a year of local consumption.

On Monday, New York cotton futures, which are used as a global benchmark, sank more than 2 percent and were on track for their sharpest daily rout in two months after the China Cotton Association, which represents the interests of farmers, unveiled the lowering of the floor price.

The reserves bureau did not say how much local cotton will be offered in its daily sale, although it said mills were free to bid for any volumes.

In a desperate bid to liquidate its stocks, Beijing has since last year given incentives to mills to buy cotton from state reserves with import quotas that gave preferential tariffs.

Mills in the past, however, have shunned the government's auction due to poor quality and much higher prices. The government had sold only 36 percent, or 684,671 tonnes, of the total offered in the auctions as of last week since the latest round of auctions began in November.

Industry sources have estimated that stockpiles of imported fibre, which are preferred by textile mills due to better quality, stood at more than 1 million tonnes.

To prevent mills from rushing to only bid for the imported material, the reserves corporation will require buyers to purchase three tonnes of locally produced cotton stored in the largest growing region of Xinjiang in exchange for each tonne of overseas fibre from the stockpile, according to the statement.

The official announcement did not publish details on government's plan to offer import quotas for access to cheap overseas cotton.

Industry sources told Reuters that Beijing will give one tonne of import quotas to mills which buy 4 tonnes of state reserves from April. ($1 = 6.2130 Yuan) (Reporting by Niu Shuping and Fayen Wong; Editing by Himani Sarkar and Muralikumar Anantharaman).

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