The gap between China's cotton output and demand might be not as large as expected, according to an expert from the China Cotton Association.

"The country's cotton output this year is not expected to decline sharply from last year," Yang Zhaoliang, deputy secretary-general of the association, told China Daily yesterday.

According to surveys and calculations by relevant government agencies and research institutions, the cotton growing area decreased between 10 to 13 per cent this year compared with 2004.

"This does not necessarily mean that the production will decrease at least 10 per cent," Yang said.

He said although some areas suffered drought and flood, the general environment remains comparatively good for cotton growing.

So far, the association predicts that total cotton production will reach 5.85 million tons this year, with average cotton production in the country expected to increase about 3 per cent.

The exact amount is likely to be influenced by this month's weather.

Earlier this year some experts predicted that the country would have to increase the size of its imports considerably, to make up for a 3 million ton gap between output and demand.

So far, the central government has released 1.4 million tons in additional cotton import quotas this year.

China's cotton imports stood at 820,000 tons in the first six months of this year, 40 per cent lower than the previous year. In June imports grew 28 per cent from the previous month to 206,000 tons, according to the latest statistics from the association.

Meanwhile, the revaluation of the Chinese currency was estimated to have lowered the price of imported cotton by 2 per cent, or around 200 yuan (US$ 24.6) per ton.

Yang said that the impact on domestic cotton prices might not be very large because the sliding duty China implemented on cotton imports would keep the import price at around 12,000 yuan (US$1,470).

"We cannot rule out the possibility that the foreign cotton sellers will increase their prices either," he said.

The spot transaction price of cotton was only 12,000 yuan (US$ 1,470) per ton this January. The price maintained a steady increase, with small fluctuations, from March to June.

However, cotton prices in both the futures market and the cash market have started to decline since late July.

The price of spot transactions stood at 13,509 yuan (US$ 1,666) per ton yesterday, according to statistics from the association.

What is more, the nation's cotton growers are also influenced by a number of uncertainties, in particular the country's textile conflicts with trade partners.

At the beginning of this year, when the decade-long textile quota regime was scrapped among all members of the WTO, many insiders were expecting a large increase in cotton demand and a surge in domestic cotton prices.

Despite the trade conflicts with the United States and the European Union, China's textile exports still witnessed a large increase in the first half of this year.

As China's textile exporters have already used up most of the quotas set by the United States and a large proportion of the quotas set by the EU bloc, textile exports might slow down in the second half of this year.

Therefore, cotton growers, cotton spinners and textile enterprises are all keeping an eye on the consultations between China and the United States over the textile issue.

As the world's largest buyer of cotton, China's demand for cotton has a great impact on the global cotton market, which is why it draws so much attention.

The International Cotton Advisory Committee, a Washington-based institution, predicted in a report that the world trade in cotton might reach a record high in the next 12 months, with China accounting for a third of that trade.

(China Daily August 5, 2005)