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Cotton buyers slow to pay up |
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2004-7-20
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Anticipating fall in the global cotton prices coupled with lack of demand from domestic textile makes due to loan curbs, China''s cotton buyers are delaying payment worth US$475 million (HK$3.7 billion) on imports from the United States, Australia.
According to Wang Xiaohong, an analyst at government-run Beijing Orient Agribusiness Consultant Cotton imports to China, cotton consumption of the world''s biggest consumer of the fibre, may have plunged 40 per cent last month from the average for the first five months of this year.
“The market is being spooked by what is happening in China,” said Richard Haire, chief executive of Queensland Cotton Holdings, which markets a third of Australia''s cotton and sells the fibre to China. “We have seen a slowdown in the opening of letters of credit and that''s been attributed to the credit issue.”
Anticipating a cool economic growth, China tightened credit for textile industries on May 14. With imports down, forecast for higher output and burdened with largest global inventories in three years; all caused decline in cotton futures in New York, which fell to a 20-month low this week. The credit squeeze has also caused payment delays for the US$4 billion worth of soyabeans China imports a year.
“You have potentially about 300,000 tons of cotton that has been sold to China, which may have been shipped but hasn''t been paid for,'''' said Kim Morison, director of Macquarie Bank''s cotton division in Sydney.
The cotton sales would be worth about US$475 million based on yesterday''s prices of the fibre trading on the Zhengzhou Commodity Exchange.
While cotton deliveries to China have slowed, there have been no reports of buyers defaulting.
“The risk is obviously greater and more expensive when you have such a significant gap between contract prices and market prices. There is no question that they could replace that contracted cotton today with much cheaper cotton,'''' Haire said.
China imported 870,000 tons of cotton last year, worth US$1.43 billion at current local prices. The country is expected to import 1.8 million tons this year. That would be worth about US$3 billion.
The US is the world''s biggest cotton exporter and the largest supplier to China. US exporters are under pressure to find more overseas customers as domestic production growth outpaces local demand for the fibre.
Owing to the decline in the US spinning industry, producers in the country had to find new markets and China is one, Queensland Cotton''s Haire said.
“We also need to recognise that China has been pretty disappointed by the quality of the cotton that''s come out of the US,'''' he said.
"We''re hearing fairly consistently that a number of US shippers pushed the quality envelope a little too far, and that''s also played a part in China''s reluctance to move ahead with certain import orders," added Haire. |
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