China's bonded warehouses bursting with imported cotton

Imported cotton has been piling up in bonded warehouses at a major coastal harbor in east China due to government import quotas and growing appetite for cheaper foreign-produced cotton.

Imports have filled up more than 30 cotton warehouses at the free trade zone of the Qingdao port in Shandong Province in recent months and some of them have been overstocked for as long as a year, according to a report in the Securities Daily.

An unidentified official of the Qingdao Hongchuan Logistics Co., Ltd. at the port said his company stopped accepting new deliveries a month ago as the 20,000-square meter warehouse was already fully occupied.

Warehouse entries usually thin out in July and August, but this year have seen storage reservations line up till October, an official from another cotton logistics company told the newspaper.

China's cotton imports in July reached 405,830 tonnes, up 158 percent year on year, while imports from January to July added up to 3.46 million tonnes, an increase of 133.8 percent year on year, customs data showed.

Song Jiening, a researcher of CIConsulting, attributed the overstocking to domestic and international price gaps as well as government curbs that restrict how much imported cotton can enter the domestic market.

The price of each tonne of imported cotton is about 5,000 yuan (788.6 U.S. dollars) cheaper than that of domestically produced cotton, driving up demand for imports, according to the newspaper.

Chinese cotton has long been more expensive than that produced in foreign countries such as the United States, as China's cotton industry still lags behind in mechanization and centralization, said Wang Qianjin, chief editor of industry website China First Textile.

The global economic slowdown and output increase in major producers have further dragged cotton prices down on the international market, leading to rising import demand, said Song.

However, much of the imported cotton cannot leave the bonded area for domestic sale as importers have to first meet government quotas, Song noted.

China handed out a total of 2.6 million tonnes of quotas to cotton importers in 2011, 700,000 tonnes more than in 2010, according to the China Cotton Association.

The government is unlikely to further relax import quotas this year for fear that the influx of cheap imports will hurt domestic cotton producers, predicted Wang.