Policy change China to cut sale price for cotton from its strategic reserve

From 1 April, the Chinese government will accept bids as low as 17,250 Yuan a ton for standard-quality cotton in its daily auction. This will be 4.2 percent below the current floor price of 18,000 Yuan, stated China Cotton Association on 24 March. The move will bring the prices closer to world market and make import of fibre less appealing to its domestic mills. It will also release some of the stockpile on the global market.

China plans to cut sales price for cotton from its strategic reserve for the first time since November, a move players feel will speed up lacklustre auctions and stymie demand for imported cotton from the world’s No 1 textile industry.

The 10 million ton reserve is enough to feed China’s mills for more than a year. With the cut, it is now cheaper for mills to buy state reserve at the new price rather than import Australian or US high grades. According to the US Department of Agriculture, the current season’s buying ending this month will leave China with an estimated 12.6 million ton of the fibre, or 60 percent of global stocks.

In reaction to the move, the New York cotton futures sank over 2 per cent and were on track for their sharpest daily rout in two months. The reserve-building policy has roiled global trade and inflated prices for three years. The benchmark May cotton contract on ICE Futures US was down 2.19 cents, or 2.3 percent, at US cents 91.12 per pound.