With manufacturing slowly recovering amid improving economic conditions, cotton demand has increased prompting more orders among mills. However, with a deficient supply of cotton in the market, prices extend gains since Oct. 2009.
In July 2010, China Cotton Index for 329-grade cotton reached at 18,500 yuan/ton. More and more cotton mills were begging the government to sell state reserve cotton by auction, as well as to give them import quotas for cotton as soon as possible. Accordingly, the government decided that from Aug. 10 2010 to Oct. 2010, China will release 600,000 tons of cotton reserves.
Auctions Touch 57% of Release Plan
By Sep. 9, the cotton was sold at an average weighted price of 17,688 yuan ($2,601) a ton, the China Cotton Association said. The government has sold 56.62 percent of the 600,000 tons it plans to release, the group said.
Table 1. Release volume for cotton reserves by day
Date
(working days)
Plan volume (ton)
Real deal volume (ton)
Average class
Average length
mm
Average weighted real deal price (CNY/T)
Real deal price for 329-grade (CNY/T)
Aug. 10
15029
15029
3.35
28.43
18208
18318
Aug. 11
14483
14483
3.61
28.32
18178
18453
Aug. 12
15106
15106
3.47
28.33
18231
18429
Aug. 13
15005
15005
3.5
28.32
18128
18342
Aug. 16
14989
14989
3.52
28.36
18039
18257
Aug. 17
15083
15083
3.5
28.35
17963
18167
Aug. 18
14594
14594
3.81
28.32
17680
18055
Aug. 19
13974
12974
3.75
28.34
16645
16960
Aug. 20
13576
13576
3.83
28.3
17502
17885
Aug. 23
12065
12065
3.75
28.3
17689
18036
Aug. 24
13349
13349
3.87
28.3
17750
18161
Aug. 25
14258
14258
3.84
28.31
17776
18169
Aug. 26
14612
14612
3.92
28.3
17688
18120
Aug. 27
14143
14143
3.87
28.37
17649
18051
Aug. 30
15018
15018
3.81
28.33
17880
18254
Aug. 31
15013
15013
3.91
28.28
17997
18437
Sep. 1
15082
15082
3.76
28.37
18052
18393
Sep. 2
15099
15099
3.8
28.26
18064
18449
Sep. 3
15040
15040
3.9
28.31
18115
18546
Sep. 6
15011
15011
3.81
28.43
18552
18922
Sep. 7
15068
15068
3.88
28.29
18902
19349
Sep. 8
15081
15081
3.87
28.32
18827
19260
Sep. 9
20058
20058
3.91
28.22
18809
19281
total
340734
339764
3.75
28.32
18043
18391
Source: cottonchina
Cotton prices that were stable in the beginning of the selling state reserved cotton rallies to CNY19000 /ton recently because supplies are tight and demand is increasing.
Multi-factors pushing up cotton price
Though the move of selling state reserve cotton was aimed to stabilize the cotton market price, the results was not good. There are multi-factors pushing up cotton price:
1. Increased demand
China's cotton textile industry saw a continue increase in cotton yarn production in the first half of 2010. Looking further, from January to June, output of cotton yarn and cotton blend yarn reached 9.7192 million and 1.2414 million tons, up 15.84% and 13.71% respectively from the previous year's period.
2. Limited Supplies
The crop in China is in worse condition this year than at the same time in 2009, the official Xinhua News Agency reported. Rain in growing areas may hurt fiber quality and cause rotting in some of the unharvested cotton in open pods, or bolls, Drew Lerner, the president of World Weather Inc., said in an interview today.
The export restrictions in India, the world's second- largest grower, are significant. India will limit exports to 5.5 million bales in the season that starts Oct. 1 and will impose prohibitive duties on shipments above that level, Commerce Secretary Rahul Khullar said earlier this month. The registration of export contracts will start Oct. 1, two weeks later than planned, Textile Secretary Rita Menon said yesterday.
The cotton output in Pakistan is likely to be lower by 18.5 percent because of floods, PCGA Chairman Haji Muhammad Akram told. According to him, devastating floods and heavy rains severely damaged the cotton crop in the country. Flood-affected areas in Punjab are estimated at 1.415 million acres (1415.6 thousand acres) while in Sindh it is about 303.2 thousand acres. The total area damaged is calculated at about 1.719 million acres (1719.8 thousand acres). Pakistan's cotton crop production is estimated at 11.5 to 11.7 million bales by considering the crop damage in Sindh and Punjab. About 1719.7 thousand acres of cotton crop has been estimated to be affected by floods and the remaining 6035.9 thousand acres of crop is estimated to be safe out of the total sown area of 77.59.6 thousand acres.
Global cotton stockpiles will drop 3.3 percent to 45.4 million bales at the end of the marketing year on July 31, U.S. Department of Agriculture data show. That's equal to 38 percent of demand, the lowest ratio since 1994. A bale weighs about 480 pounds (218 kilograms).
Uncertainties linger on
Chinese cotton market still looks bullish, though a number of uncertainties linger on. Tight supply from cotton imports, fast growth of cotton yarn exports, and the delayed cotton planting will support cotton price. Cotton prices have been increasing at an unprecedented level in China. Prices have been going up internationally as well. Cotton spinning mills face a challenging environment in high purchasing prices where it may be difficult to pass higher material costs on to higher yarn prices. Besides, yuan appreciation could may pull down the performance of Chinese cotton textile industry in the second half of 2010. Chinese cotton textile industry will see a continue recovery but risks still exist.
