China's cotton import demand seen hurt by fears of lower quotas
"I believe there is a strong urge for Beijing to de-stock," said one of the trade sources.
Without offering quotas, demand at reserve sales would be tepid, sources said. Auctions begun in November have only shifted 404,000 tonnes, or 38 percent of volumes on offer, despite prices dropping below 17,000 yuan ($2,800) per tonne.
That price is 17 percent less than the reserve's current purchase price, but more than 50 percent higher than the most-active March cotton contract on ICE Futures.
"You're still paying a substantial premium (on international prices) to buy from the reserves, even if they cut their prices," added one of the traders who sought anonymity to protect business interests.
In the absence of sufficient import quotas, mills could turn to yarn instead. Imports of yarn - not restricted by quotas and subject to low import duties - reached a record 2.1 million tonnes in calendar 2013, up 37.5 percent on the year. ($1=6.0508 Chinese yuan)
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