China Cotton Auction: Turnover At 100 Percent For Third Day In A Row

MUMBAI (Commoditiescontrol): The auction which has entered its 16th day is showing impressive results with 100 percent of cotton on offer being

picked up for the past three trading days.

Spot Market News

Due to falling stocks of imported cotton Chinese ports are releasing Uzbekistan, Australia and US style under

1 percent import tariff quota. Sales are improving at the ports as ICE prices are lower and Uzbekistan cotton

is being offered at a cheaper price. Around 2.1 lakh tons of cotton has been imported so far of which 0.6 lakh

tons were imported in April. Around 1 to 1.2 lakh tons are expected to be in 2015 quota and 8 lakh tons in

2016 quota.

Estimates of fresh crop arrivals which begin after end of August will only start to become clearer towards

end of June many mills are purchasing the cheap imported mills styles for use in September/ October

time period. Price of the imported styles are reported to be offered at a premium of 300 to 500 yuan over

the T3128 equivalent in the cash market.

Some spinning mills are still not participating in the reserve cotton purchases due to higher prices and preferring

to purchase from the spot market to refill their stocks. Inventory in many mills have reached more than 30 days.

Mills usually keep around 45 days stock as inventory.

Auction Quantity

Auction commenced on 3rd May. Cotton being auctioned is that of the years 2012-13 and 2013 - 14.

Total Quantity Offered	Total Quantity Sold	Total Domestic Cotton Sold	Total Imported Cotton Sold
357491.2	355355.4	127217.4	228137.9

Quantity in Metric Tons

From 3rd May to 18th May 3555355.4 tons of cotton or 99.40 percent of total quantity offered has been sold

in the auction. Share of Imported cotton sold so far stood at 63.82 percent yesterday down from 65.93

percent on Tuesday. Share of domestic cotton stood at 35.59 percent yesterday up from 33.42 percent on Tuesday.

Quantity on offer fell yesterday to 25003.1 metric tons from 30024.8 metric tons offered on Tuesday a

drop by 16.72 percent yesterday. Average quantity stood offered until yesterday stood at 29790.93 tons.

Quantity of domestic cotton offered dropped yesterday by 3.45 percent while imported cotton offered reduced

by 33.26 percent.

Ratio of Sales To Domestic and Imported Cotton

Ratio of Domestic Cotton being offered continued to increase however to be more than that of imported

cotton for the second day in a row since the auction began. Ratio of domestic cotton sold stood at 64.31 percent

as compared to 55.47 percent on 17th May. Ratio of imported cotton sold stood at 35.69 percent as compared

to 44.53 percent a trading day earlier.

Auction Turnover And Staple Length

Total turnover has been steadily increasing for the past five auction days. Total turnover stood at 100 percent over

the past three trading days.

Staple length was higher yesterday at 28.5 MM as compared to 27.22 MM on 17th May.

Auction Price

Though turnover stood at 100 percent average auction price fell yesterday by 0.45 percent. Average price stood

at 12197 yuan per ton or $0.915 per pound.

Both highest selling prices and lowest selling price fell sharply yesterday. Highest price fell by 6.66 percent while

lowest selling price fell by 19.27 percent.

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

week’s floor price of 11931 yuan per ton.

Today’s Offer

Offer quantity is marginally increased today to 25578.54 metric tons today. Floor price remains at 11839 yuan.

1st Session – 15000.40 tons of domestic cotton has been offered today while no imported cotton has been put on

offer in the 1st session

2nd Session – 10578.14 tons of cotton has been offered of which 5884.76 tons will be domestic cotton while

4693.38 tons will be of imported cotton.

Exchange Prices With Volumes

ZCE Cotton September

ICE Cotton July

Price of ZCE continued to move higher while that on ICE dropped.

Impact

Offer of imported cotton is reducing at a drastic pace and so too is the overall quantity of cotton offered

reducing. With Chinese authorities releasing imported cotton on quota, levels of imported cotton in reserves

would be drastically low.

Turnover remains good so far as there is still 30 to 45 days before estimates on fresh crop arrivals starts

to pour in. However with many mills already having inventory of more than 30 days, and some mills preferring

to hold on the sidelines, the viability of the auction to last until end of August itself comes under question.

Even if the auction lasts turnover levels would soon drop as mills are almost reaching their capacity levels.

So the picture which is forming from the data till now is that 1) stocks of domestic cotton with the Chinese

reserve is of low quality 2) stocks of imported cotton are very low and 3) there is a three to four month

intermediate period before fresh crop starts to arrive.

Thus we would expect prices on ICE to increase in the near term on expectation of increase in imports to

China. Also low quality of stocks in the domestic market will push prices higher there too which is already

being seen on ZCE futures.

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