By Bruce Hextall

SYDNEY, April 7 (Reuters) - Australia's cotton industry is betting on a high quality crop this year to offset weaker demand amid the global recession and as China, the industry's main customer, cuts back its imports. Industry officials said on Monday that early indications from the harvest now underway showed high crop quality, in terms of fibre length, strength and fineness, so boosting marketability.

More than half the expected crop of 1.4 million bales has been pre-sold to customers, including mills in China, but new customers will need to be found in countries such as South Korea, Japan and Thailand for the remainder.

"Australian cotton is very saleable in China but there's been a significant cutback as mills haven't got the import quotas," said Campbell Ball, marketing manager at Queensland Cotton Ltd, a unit of Singapore's Olam International Ltd (OLAM.SI).

Last year mills in China took 75 percent of the Australian cotton crop of just 600,000 bales when drought reduced the amount water available for irrigation.

Textile mills in China have been urging Beijing to issue more quotas for imports but instead the state has been purchasing domestically grown cotton to support prices at a time of falling demand for the fibre.

Ball didn't foresee any difficulty selling the rest of the July 2008-June 2009 crop, which will be the best in four years.

"The quality of Australian cotton is well known, so it's not as if we have to labour the point," he said.

Improved water availability for irrigation following drought-breaking rain across the cotton belt in eastern Australia saw farmers plant 164,000 hectares in cotton in 2008/09 compared with just 63,000 hectares a year earlier.

Most farmers also locked in prices, up to three years in advance, which Ball said meant still attractive prices even though cotton prices in U.S. dollar terms had almost halved over the past year.

Bob Bell, chief executive of the country's largest cotton processor, Namoi Cotton Ltd (NAM.AX), said new varieties had produced high quality fibre sought for use in high-end fashion apparel.

"The quality coming through is fine, which reflects substantial advances in varieties," said Bell. He said demand around the world was slow but had improved since the fourth quarter of last year.

"The thing that's critical for us is quality, as around the world, whilst supplies are adequate, the top end of the market is typically undersupplied," said Bell.

He said Namoi expected to concentrate its marketing effort in China in the second half of the year as it was likely more import quotas would be released as domestic supplies tightened because of state purchases.

"People are expecting, in another month, further quotas to be released, and that's where we see demand coming," said Bell. (Editing by Clarence Fernandez)