The movement of prices of cotton in Chinese market this year will much depend on the policy adopted by the Government in purchase and release of cotton from state reserves.
Under its 2012 temporary cotton procurement plan, the Government has already bought 5.58 million tons as of January 11, 2013.
If the Government procures around 20,000 tons of cotton per day during the remaining period of the current season, the total procurement for state reserves would grow to 6.50 million tons, which would be about 90 percent of this season’s estimated production of 7.22 million tons, according to analysts.
They aver that the structure of Chinese cotton market has completely changed due to the Government’s policy of procurement at a price that is higher than spot market price.
The Government’s procurement plan has completely squeezed spaces of spot, futures and other cotton markets in the country.
At the same time, the plan has greatly increased the ability of the Government to regulate market prices in 2013.
Meanwhile, the Government has started releasing cotton from its state reserves this month, and as of January 16, a total of 158,040 tons of cotton was released.
This has immediately impacted the prices of imported cotton and the quotation for grade 3 cotton imported from Greece, Brazil and Mexico decreased by about 100-200 yuan/ton within few days of the beginning of the release of cotton from reserves.
Since the fluctuations in cotton prices tremendously impact textile enterprises, analysts expect the movement of Chinese cotton market in 2013 to be much depended on the supply and demand conditions regulated by the Government.