China cotton import costs to rise under adjusted tariffs

The cost of importing cotton into China next year will be only slightly higher, after Beijing adjusted its formula for calculating tariffs, but some traders said this would not clarify uncertainty over demand by the world's top cotton buyer. The official announcement confirmed changes leaked in a report on Friday by industry website cncotton.com.

The news sent prices on US futures exchange ICE up to a seven-week high as traders saw the details as confirmation that Beijing will continue to issue import quotas. China's finance ministry said on Monday it will raise the benchmark for its sliding scale tariffs from 14,000 yuan per tonne in 2013 to 15,000 yuan ($2,500) in 2014. At this price, a fixed duty of 570 yuan per tonne will be applied. For fibre valued at less than 15,000 yuan per tonne, the duties will be calculated according to a sliding scale formula, also modified from last year.

Beijing allows 894,000 tonnes of cotton imports at a duty of 1 percent under commitments to the World Trade Organisation, known as tariff-rate quotas (TRQ). It also typically allows for several hundred thousand tonnes of imported fibre at a sliding tariff rate of between 5 and 40 percent. However, there have been concerns that Beijing would limit its non-TRQ import quotas this year as it seeks to sell off millions of tonnes of fibre stockpiled in domestic reserves.

Stockpiling by China has pushed up domestic prices and stoked imports of cheaper cotton. But Beijing is under pressure to reduce its stocks, now around 10 million tonnes after three years of hoarding fibre. Traders in China said that today's news on tariffs did not allay concerns about next year's import quotas. "We still have no idea when the new sliding tariff imports will be issued nor the volumes so the impact is limited," said one trader.

The combined impact of the higher benchmark price and adjusted formula for the sliding scale tariffs will make imported cotton on average about 200-300 yuan more expensive per tonne, said industry participants. "The key is that the only quota actually confirmed for next year is the WTO quota," said another source.