China will auction 600,000 metric tons of cotton from state reserves from Aug. 10 to satisfy demand and stabilize the market, the China Cotton Association said today.
China will sell the cotton at a minimum of 16,500 yuan ($2,439) a ton in a series of auctions, the statement posted on the state-backed group's website said. Textile companies will only be permitted to purchase maximum volumes equivalent to 10 days usage every week to avoid speculation, it said.
Cotton output fell 14.9 percent to 6.38 million tons in 2009, according to the National Statistics Bureau. Cotton in Zhengzhou reached a record in May of 18,350 yuan a ton as supplies tightened on increased demand for yarn and output cuts. Prices have fallen 9 percent since then on speculation the government would auction state reserves.
The sales should be enough to sustain China through to the new-crop season, Dong Shuzhi, analyst at Jinshi Futures Co., said by phone from Shanghai. The news will not affect prices much now because the market has been expecting it and prices have reflected the additional sales.
Cotton for January delivery, the most-actively-traded contract on the Zhengzhou Commodity Exchange, closed little changed at 16,730 yuan a ton.
Speculation Ban
Total purchases by one buyer over the course of the auctions cannot exceed its needs for one month, the group's statement said.
Buyers must only buy to meet their own production needs and are prohibited from selling the cotton to other companies, the statement said. Violators will be fined 1,000 yuan a ton and banned from participating in future cotton stockpiles sales for the next three years, it added.
All eyes are on the weather now to gauge price movements going forward, Dong said. China may produce 7.2 million tons of cotton in 2010-2011, up 1.5 percent compared with a year earlier, the U.S. Department of Agriculture said in its July report. The country may still need to import 2.5 million tons of cotton in the year ending July, 2011, the USDA said.
Output may drop by 5 percent to 10 percent because of reduced planting and adverse weather, Li Qiang, managing director at Shanghai JC Intelligence Co., said last week. Output in the U.S., the world??s largest exporter, may rise by 50 percent to close to 4 million tons, the USDA said.
People are also watching if India and Pakistan, the world's second- and fourth-largest producers, will be able to deliver their estimated output, Dong said.
Pakistan's deadliest floods in decades destroyed 30 percent of the cotton crop, Khursheed Ahmed Khan Kanjo, president of the Kissan Board of Pakistan said today. The government's target of 14 million bales of cotton won't be met and Pakistan may need to import more of the fiber this year, he said.
Output in India and Pakistan is forecast to rise 6.4 percent and 6.3 percent to 5.4 and 2.2 million tons, respectively, according to the USDA.
