For mills holding one percent import quotas, available imported cotton is cheap versus local cotton. For any mills receiving new general trade quotas with the rather complex sliding-scale tax, imported cotton is now approaching the attractive point, following the renewed weakness in international prices. When VAT and port charges apply, the current average landed-the-mill price of SM 1-1/8" is near the equivalent of 79.23. A 58-cent CIF Chinese port price is equivalent to near 69.12, with VAT and port charges raising it to 79.98 cents landed-the-mill. But at this level, many mills, if they have quotas, prefer imported cotton.

The weakness in offers of U.S. and West African cotton has stimulated offtake in China. The import sliding scale is applied on a CIF China basis. The minimum tax is 6 percent at the equivalent of 11,397 yuan per ton CIF value, which is currently approximately 66.80 U.S. cents per pound. The continued monthly appreciation of the yuan is moving the equivalent price in U.S. cents per pound higher. In December 2006, the equivalent price was 65.67 U.S. cents per pound -- all cotton falling below this price draws a higher tax.

A substantial volume of U.S. low-grade, Uzbekistani, West African, Brazilian and Indian cotton has sold this week. Most of the offtake appears concentrated from mills with processing quotas.