China begins releasing cotton from state reserves

15 Jan '13

2 min read

China has finally started releasing cotton from its reserves through auction on January 14, 2013.

The weighted trading price of cotton at auction was 18,405 yuan/ton, which was equivalent to 19,046 yuan/ton for grade 328 cotton, which was 143 yuan/ton lower than the CCIndex price on January 14.

At present, the supply of cotton, especially high-grade cotton, is limited, as most of the cotton has shifted to Chinese national reserves, which has accumulated nearly 8 million tons. Hence, the National Development and Reform Commission took the decision to release some cotton from the reserves.

Ahead of the start of auctions, the China Cotton Textile Industry Association and the National Cotton Exchange reviewed the qualifications of enterprises that would be allowed to participate in the auction.

As per the guidelines, the maximum bidding quantity for participating companies before March 31, 2013 should not exceed their two-month consumption, and the purchased cotton must be limited to their own use and not be resold.

According to analysts, the Government wants to narrow the price gap between domestic and imported cotton.

If the state releases 3 million tons of cotton from state reserves and allocates 1 million tons of import quotas under 3:1 principle, the total supply will be 4 million tons, which will meet the consumption of enterprises for 6 to 8 months, based on current cotton use of textile enterprises.

Based on the CIF value of US imports at 85 cents/lb and releasing price at 19,000 yuan/ton, if the state releases 3 tons of cotton reserves and allocates 1 ton of import quota under floating tariff, the average cotton price will narrow down to 17,943 yuan/ton.

Fibre2fashion News Desk - China

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