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Price cut increases demand at cotton auction

Source:Reuters Published: 2014-4-2 23:18:01

The first auction of raw cotton by China's State stockpiler since cutting its minimum bidding price met with strong demand on Tuesday, with appetite at future sales expected to stay robust as the country looks to offload its massive reserves.

A successful round of sales could curb Chinese appetite for imports, pressuring international prices and hitting top exporters India and the US, which are already smarting from dropping shipments.

The China National Cotton Reserves Corporation said in a statement late on Tuesday that it sold nearly 80 percent of the raw cotton on offer in the auction. That was over double the rate in the last round of sales.

"The takeup rate should be much higher in this round of auctions after the central government cut the base price," said Liu Shijun, a cotton analyst at brokerage Jingyi Futures.

"US cotton prices are also quite high at the moment so Chinese textile mills will prefer domestic supplies."

China sold 40,119 tons of the 50,179 tons of cotton offered in its daily auction on Tuesday, according to the State stockpiler.

Cotton markets around the world are watching closely as China unwinds a stockpiling scheme under which it has amassed more than 10 million tons of the fiber.

The world's top cotton buyer is switching away from supporting farmers through stockpiling to a subsidy-based program.

Mills had shunned the last round of auctions, from November to March, citing high prices and poor quality. They bought only 33.4 percent, or 717,740 tons, of the total offered during the period.

To draw more buyers to the latest round of sales, the stockpiler has slashed the minimum bidding price and is offering better quality reserves.

It will also award one ton of import quotas for each four tons of cotton purchased from State reserves.

Reuters
Posted in: Markets