August 29, 2012

China will be auctioning cotton from national reserves to meet domestic demand.

The market impact will be limited as the volume is much smaller than earlier expected, according to traders.

The government plans to offer an initial 200,000-300,000 tonnes of the crop at a base price of US$2,900 per tonne, traders said, citing a meeting held by the National Development and Reform Commission on August 27.

Earlier speculation that the government may sell as much as one million tonnes of cotton had helped easing New York cotton prices.

Traders said most of the cotton offered would be from last year's harvest. It has fetched a cash price of around US$2,900 per tonne.

One trader said the government may increase the sales volume later, depending on market reaction.

"However, the impact on market prices would be small as the new crop is coming soon and the mills' demand is expected to be low," said Guo Weile, an analyst with industry website, TTEB, adding the base price was not attractive.

The government holds about 4.4 million tonnes of cotton reserves, including 3.13 million tonnes stockpiled from the 2011 harvest, according to estimates by some analysts.