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China May cotton imports fall, may rebound on quotas

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May cotton imports by China, the world's top consumer of the fibre, slipped last month to 502,000 tonnes, the China Cotton Association said on Monday, marking the second straight month of decline as mills ran out of import quotas. It said May imports were down 1.5 percent from the 510,000 tonnes recorded in April, citing official customs data.

However, total arrivals in the current marketing year (September-August_ had more than doubled from a year ago to 4.25 million tonnes, it said. Traders said imports are set to recover in the coming months after Beijing issued 1 million tonnes of extra quotas in May to help textile mills buy cheaper overseas cotton.

Shipments could get a further boost amid market rumblings that Beijing was considering raising import quotas again or embarking on state stockpiling. Both moves would lend support to benchmark US cotton prices that have slumped more than 20 percent over the past month due to a supply glut. "China needs to import a large volume of cotton every year anyway and right now world cotton prices are very low. More purchases by the state reserve would support global prices and help lower its (overall) reserve cotton costs," said Dong Shuzhi, director of the cotton department at Founder Commodities Group, a Chinese trading house.

Beijing has so far turned to stockpiling domestic supplies to help support local prices. But that move has only aggravated the difference between cotton futures on the Zhengzhou exchange and the US, causing local prices to be 40 percent more expensive than imports and hurting its textile sector. Citing a slump in export sales, the China Textile Council urged the government in late May to raise import quotas further so they could secure cheaper supplies and better compete on the global market.

With the domestic planting season ended, analysts said Beijing could now look at ramping up overseas imports to take advantage of cheap prices, a move which would also benefit local farmers by gradually narrowing the price arbitrage. Separately, the China Cotton Information Center on Monday raised the country's import forecast to a record high of nearly 5 million tonnes. Cotton consumption, however, was cut to 8.22 million tonnes from 13.7 million tonnes for the current marketing year ending August.

The center said it expects 2012/13 cotton imports to fall to 3 million tonnes amid ample domestic stocks, with consumption seen at 8.5 million tonnes. China will release final cotton import figures on Thursday. Traders and analysts said they have not heard of any fresh purchases by state stockpiler China National Cotton Reserves Corp (CNCRC). A CNCRC spokesman declined comment when asked if it was importing from the US to boost stockpiles.

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