China Cotton Auction: Offer Of Domestic Cotton Increasing

MUMBAI (Commoditiescontrol): China Cotton Auction: Offer Of Domestic Cotton Increasing

Offer and purchases of domestic cotton is increasing as cotton yarn mills are using it to produce low

count cotton yarns. Though cotton yarn mills may not necessarily be happy with the quality of the

reserve cotton as average staple length offered is decreasing, they find it hard to return the goods

and hence production of low count cotton yarn is expected to rise in the coming months. Weavers

are also increasingly using domestic cotton to replace imported cotton.

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
332488	330352.2	111138.3	219214

Quantity in Metric Tons

330352.2 tons of cotton or 99.36 percent of total quantity offered has been sold in the auction until

17th May. Domestic cotton accounted for 111138.3 tons or 33.42 percent of total quantity offered.

Imported cotton accounted for 65.93 percent or 219214 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 30226.18 tons while 30246.22 tons was offered on 17th May. Quantity of domestic

cotton offered continued to increase sharply by 34.11 percent on 17th from 16th May while imported

cotton offered reduced by 24.92 percent.

Ratio of Sales To Domestic and Imported Cotton

Ratio of Domestic Cotton being offered increased yesterday to be more than that of imported cotton for

the first time since the auction began. 17th May ratio of domestic cotton sold stood at 55.47 percent as

compared to 41.08 percent on 16th May. Ratio of imported cotton sold stood at 44.53 percent as compared

to 58.92 percent a trading day earlier.

Auction Turnover And Staple Length

Total turnover has been steadily increasing for the past four auction days. 16th and 17th May saw total

turnover stand at 100 percent.

After a marginal increase in average staple length on 16th May, yesterday saw staple length fall again.

Average staple length offered on 17th May was 27.22 MM as compared to 27.88 MM on 16th May.

Auction Price

100 percent turnover for a second day in a row caused the average auction price to increase to 12252 yuan

or $0.919 yesterday from 12136 yuan or $0.910 on 16th May. Increase in average price was 0.96 percent as

compared to a 0.80 percent drop on Tuesday.

Difference between highest and lowest selling price reduced yesterday. Infact the lowest selling price moved

higher than the floor price for the first time since 3rd May.

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 and ICE cotton moved higher yesterday.

Impact

Contrary to expectations of cotton prices to plunge at the start of the Chinese auction, prices are

increasing atleast over the past few days. 100 percent turnover and increasing average price

regardless of the fall in average staple length may cause Chinese authorities to push floor prices

higher if this trend persists in the coming days.

The picture that is emerging is that quality of domestic reserves is low and availability of imported

cotton is limited. If this picture is true, then prices will not be plunging but soaring higher.

Three scenarios are possible at this point – 1) Low quality of domestic cotton and limited imported

cotton could cause the period of the auction to be short lived as compared to Chinese authorities

who intend to continue this auction till end of August. In this case we would have a clear indication

of prices to increase as China would be forced to import cotton. 2) As cotton yarn mills are purchasing

the low quality cotton the auction could last the intended period until August. This would reduce

the demand for imported cotton, nevertheless, it will be by a small amount and hence prices would

still increase.

Hence till the picture of arrivals of fresh crop becomes clear and the need for China to import cotton

which is emerging as per data available till now, we would expect price outlook to remain optimistic in

the near term.

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