MUMBAI (Commoditiescontrol) - After the world’s top cotton consumer, China announced that it would soon start releasing cotton from its massive state stockpile at discounted rates, domestic and overseas markets have been feeling the pressure. Various talks have cropped up with regards to what consequences will this move by the largest consumer would bring in the markets.
China is holding around 10 million metric tons (MT) of cotton at its state reserves, more than 40 percent of world stock.
To start with, the country is likely to offer up to 1 MMT from reserve cotton, including 400,000 MTs from 2011 crop, 300,000 MTs from 2012 crop and 300,000 MTs from 2012 crop which was imported from U.S at discounted rates. However, there is still no official announcement about the reserve selling details.
| Crop |
Quantity In Tons |
RMB (China Currency) |
| 2011 Crop |
400,000 |
13,200 |
| 2012 Crop |
300,000 |
14,200 |
| 2012 Crop (US Cotton ) |
300,000 |
15,200 |
| Total |
1,000,000 |
|
However, speculations are that the reserve cotton may find it very difficult to attract buyers even at discounted rates as the quality of cotton held in the state reserves is poor and degrading each day given the many years of storage. However, the government may have to try hard to release its stockpile as stocks also occupy large amount of warehouse expenses and financial fund.
If the state cotton reserve policy starts, it may push up cotton prices, especially for high-grade cotton, which is the need of hour for domestic mills. If the Chinese government procures high-grade cotton at high prices, mills may hardly compete with the government and price gap between high-grade and low-grade cotton may enlarge.
Yin Jian, Deputy Director of the Department of Trade of the National Development and Reform Commission (NDRC) said that the official detailed plans about the reserve release are expected by June-end.
After China stated to release the reserved cotton, the Cotton Corporation of India (CCI) had lowered its E-auction floor prices by Rs 900/candy (356kg each) in the last week. The news posed great impact on the both ZCE and ICE cotton futures markets as well.
In its effort to support domestic growers, China has limit its 2015 cotton import quota to 894,000 tons, agreed in its commitments with the World Trade Organisation (WTO). The world's top consumer of cotton, has in the past years issued several thousand tons of import quota in addition to the volume agreed under the WTO terms. The change in policy already impacted major exporters such as U.S and India.
(By Commoditiescontrol Bureau; +91-22-40015522)
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