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Cotton Production, Quality May Decline in China, Boosting Imports, Prices

China, the biggest cotton grower and buyer, may boost imports as low temperatures and rain hurt crop quality and production, according to a Bloomberg News survey.

The crop may shrink for a second year to between 6.4 million and 6.8 million metric tons, said five China-based analysts. Production tumbled 13 percent to 6.8 million tons last year, according to the China Cotton Association. Heavy rains also soaked open-boll cotton in its final development stage in some areas, said the analysts surveyed in the past week.

Increasing imports may extend gains in New York futures which soared 25 percent since July 20 to a 30-month intraday high on crop damage in Pakistan and concern global demand will outstrip supply. A lack of quality cotton may also fuel a continued rally in local prices. China’s government has been selling from stockpiles to help plug the shortage.

“The weather’s negative impact on yields and quality has become a concern,” Dong Shuzhi, assistant general manager at Jinshi Futures Co., said by phone from Shanghai. “Investors are now piling into cotton, as new-crop supply is deemed tight while demand from textile mills remains robust.”

China will import 12.5 million bales of 480 pounds each in 2010-2011, 14 percent more than the 10.94 million bales in the previous year, according to the U.S. Department of Agriculture.

“Demand in China may outstrip output by more than 4 million tons this year, which will make the country increasingly reliant on imports,” Du Ying, an analyst at Wanda Futures Co., said by phone from Urumqi, Xinjiang. Du estimated output at 6.8 million tons, lower than the USDA prediction of 7.2 million tons.

Rains Hurt Quality

The rainy weather is causing bud- and boll-shedding in Dezhou, Shandong, Yuan Renqing, analyst at Baocheng Futures Co., said by phone from Jinan, Shandong on Sept. 2. Rains caused bolls to become moldy, reducing quality, he said, after a trip to the fields in Dezhou.

Increased production in Xinjiang may help offset losses in places such as Shandong and Henan, according to the survey.

The U.S. has sold more than 1 million tons of exports from the new crop, of which China is taking more than 400,000 tons, according to Jinshi’s Dong.

“It seems China hasn’t bought much yet, maybe due to high prices, but the number showed two things: first, demand outside of China is strong,” Dong said. “Secondly, China will have to buy if end-users come to realize high prices are here to stay.”

Picking is scheduled to begin in mid-September in Shandong, and procurement prices are likely to range from 8 yuan to 10 yuan per kilogram, well above year-ago prices, the China Cotton Association said on its Web site yesterday.

Cold Fronts

Cold fronts arrived Sept. 5 and lowered temperatures in northern China, including Xinjiang and northeastern Inner Mongolia, by 2 degrees to 5 degrees Celsius, the National Meteorological Center said yesterday on its website. They may also bring snow or sleet, it said.

Demand remained strong, the analysts said. Profits in the textile industry nationwide jumped 52 percent in the first seven months, according to the National Statistics Bureau.

“Downstream consumption is always highly correlated to the health of the overall economy,” Jinshi’s Dong said. “With the worry of a double-dip recession now behind us, the textile industry continues to look favorably to the future.”

Concern about future supply helped drive the daily average price of reserve-auction cotton to 18,552 yuan ($2,732) a ton yesterday, the highest level since the latest round of auctions started Aug. 10. A total of 289,548 tons have been bought, 48 percent of the 600,000 tons up for auction, Cncotton.com said.

The government sold 3.22 million tons from stockpiles in the past two years, depleting its reserve and making the government a less likely source of supply, Wanda’s Du said.

All forward contracts advanced today with the most actively traded May contract gaining as much as 1.4 percent to 19,055 yuan a ton, the highest price since futures started in July 2006.

The survey respondents also included Wang Junjun, analyst at Great Wall Futures Co. in Shanghai, and Wang Yong, analyst at Hongyuan Futures Co. in Beijing.

--Feiwen Rong. Editors: Richard Dobson, James Poole

To contact Bloomberg News staff for this story: Feiwen Rong in Beijing at +86-10-6649-7563 or frong2@bloomberg.net

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