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Dip in cotton futures price impacts Chinese traders
Jun '12
Over the last one month, cotton futures price for September delivery has decreased by more than 10 percent from 21,000 yuan/ton to 18,500 yuan/ton at the Zhengzhou Commodity Exchange, which has affected traders who did not indulge in hedging in the futures market.

Chinese traders have large amount of cotton stocks with them as they are importing cotton in large quantities from India and the US, exploiting the huge difference between domestic and international prices.
However, these traders have to get cotton-import quotas in order to sell international low-priced cotton to domestic textile enterprises.
International cotton prices have fallen from 210 cents per pound in 2011 to 66 cents per pound this year. In contrast, the China National Cotton Reserves Corporation has increased its cotton purchase price for 2012 to 20,400 yuan per ton, up from 19,800 yuan per ton in 2011.
In order to prevent cotton spinning enterprises from selling low-priced imported cotton to state reserves, relevant ministries have delayed or even stopped giving cotton-import quotas to cotton spinning firms, which makes it difficult for them to buy low-priced imported cotton. 
Moreover, high domestic cotton prices coupled with weak textile market has forced many Chinese textile enterprises to suspend production.

Fibre2fashion News Desk - China

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