February 9, 2012

China's cotton supplies reach 2.5 million tonnes

As of Tuesday (Feb 7), China National Cotton Reserves Corp., the state stockpiler, had stockpiled 2.5 million tonnes of cotton since early September as part of a programme aimed to encourage local production.

The volume represents 61% of the government's cotton-storage capacity of 4.1 million tonnes and 34% of China's cotton output last year, based on the China Cotton Association's 2011 output forecast of 7.28 million tonnes.

China National Cotton will likely have bought more than three million tonnes when the procurement programme ends March 31, traders and analysts said.

The stockpiler began buying cotton September 8 at RMB19,800/tonne (US$3144.70).

The programme is intended to encourage domestic production by raising prices. China is the world's largest producer and consumer of cotton, but it depends heavily on imports and wants to boost domestic output.

Market prices have risen slightly since the end of the Lunar New Year holiday as textile companies resumed production.

Cotton traders and farmers said they expect the government to raise the 2012 purchase price. The government is likely to announce the 2012 price before March, when farmers begin sowing cotton.

The government's programme has supported domestic cotton prices. The most actively traded cotton contract on the Zhengzhou Commodity Exchange has risen 11% since the programme began.

Meanwhile, ICE cotton prices have fallen 14%.

However, the upside for domestic cotton prices appears limited. The arrival of heavy volumes of imported cotton and declines in European and US textile orders from China have weighed on prices.