China Cotton Auction: Average Price Fell, Turnover 100 Percent

Mumbai(Commoditiescontrol) - The on-going cotton auction in China is seeing a tremendous response with average turnover from 3rd May till 16th May being

over 99 percent. Yesterday's turnover was the highest at 100 percent. This is providing a boost to prices as represented on ZCE Cotton where prices

have pulled higher from the lows while prices on ICE futures too have rallied on Friday and continue

to be higher as we write this report.

Auction Quantity

Auction commenced on 3rd May. Cotton being auctioned is that of the year 2012-13.

Total Quantity Offered	Total Quantity Sold	Total Domestic Cotton Sold	Total Imported Cotton Sold
302463.2	300327.5	94483.84	205843.6

Quantity in Metric Tons

300327.5 tons of cotton or 99.29 percent of total quantity offered has been sold in the

auction until 16th May. Domestic cotton accounted for 94483.84 tons or 31.46 percent

of total quantity offered. Imported cotton accounted for 68.53 percent or 205843.60 tons

comprised of imported cotton. Total quantity offered both in domestic and imported cotton

was sold yesterday.

Overall quantity offered continued to be lower than the average quantity offered daily.

Average quantity stood at 30246.22 tons while 30226.45 tons was offered on 16th May.

Quantity of domestic cotton offered increased sharply by 32.19 percent on 16th from 13th May

while imported cotton offered reduced by 12.88 percent.

Ratio of Sales To Domestic and Imported Cotton

Ratio of Domestic Cotton being offered is being consistently increased while that of imported

cotton is being consistently decreased. 16th May ratio of domestic cotton sold stood at 41.08

percent as compared to 31.49 percent on 13th May. Ratio of imported cotton sold stood

at 58.92 percent as compared to 68.51 percent a trading day earlier.

Auction Turnover And Staple Length

Total turnover has been steadily increasing for the past three auction days. 16th May saw total

turnover stand at 100 percent.

Though overall Quality of cotton on offer is dropping consistently, average staple length

offered on 16th May was 27.83 MM as compared to 27.13 MM on 13th May.

Auction Price

Prices this time are clearly moving in tune with the quality on offer.

Average auction price fell to 12136 yuan or $0.910 on 16th May from 12234 yuan

or $0.918 on 13th May. 13th and 16th May has seen average price drop by 0.76 and 0.80 percent

respectively.

Difference between premium and discount remained nearly flat with a marginal reduction

being seen in discount probably indicating better quality being offered as compared to the

previous days.

Floor Price For Week 16th To 20th May

Floor price for the coming week has been fixed at 11839 yuan per ton down by 92 yuan

as compared to the previous weeks floor price of 11931 yuan per ton.

Exchange Prices With Volumes

ZCE Cotton September

ICE Cotton July

Price of ZCE Cotton is stabilizing at current levels of around 12365 yuan after recovering

from the lows.

Price of ICE Cotton is also seeing recovery from the lows.

Impact

Average price fell to a new low on 16th May coinciding with the sharp increase in domestic

cotton being offered. This could indicate that even though average staple length was

higher on 16th when compared to 13th, overall quality of cotton is falling. Alternatively,

falling average prices could also signify desperation on part of Chinese authorities to make

this auction a success.

As expected by us, rising prices on ZCE futures has caused ICE futures also to move higher.

One could also attribute rising crude oil prices to rise in ICE futures and hence to pinpoint the

impact of the quality of cotton offered on price outlook at this point would be difficult. However,

one thing needs to be borne in mind is that, in the case the auction fulfills the need of the domestic

market, then Chinese imports of Cotton could fall and future prices could remain subdued for a long

time.

With the data we have so far, and movement of cotton prices on exchanges cotton price outlook

seems optimistic as of now.

(By Commoditiescontrol Bureau; +91-22-40015522)