China Began Selling Huge National Reserve Cotton

China is planning to sell huge national cotton reserves in November 28, 2013. The move is expected in the market and has begun to lower the price of cotton in the international market.

After three years of massive buying (which supports the price of cotton in the international market), China's state reserve cotton is now about 10 million tons, accounting for half of the world's total reserves. China National Cotton Reserve Corp, China's cotton reserves, is in a dilemma because any effort to reduce reserves is likely to further reduce cotton prices and lead to huge losses.

The China National Cotton Exchange announced yesterday that the auction will surely be closely watched by the market. Investors will be looking for clues to judge the fate of the huge reserve cotton stocks in the central storage cotton warehouse.

In recent months, due to the expectation that China will sell the national reserve cotton, the spot price of ICE has been steadily declining. ICE cotton prices fell 1.5% from March to yesterday, to 77.76 cents per pound.

The bottom price of today's auction may be set at 18 thousand yuan per ton (equivalent to 1.34 dollars per pound), which is much lower than the cotton purchase price of 20 thousand and 400 yuan per ton in the acquisition season, according to industry executives.

Ron Lawson Ron Lawson, an American commodity broker, said the auction notice did not mention additional cotton import quotas for Logic Advisors. Unless the Chinese government changes cotton import policy, the auction will give foreign cotton mills advantages over China's cotton mills.

"International cotton prices are cheaper," he said. If you can buy a Ferrari (Ferrari) for 85 thousand dollars, why spend $100 thousand to buy a Chevrolet Corvette?

In order to stabilize the supply of cotton and ease the cotton farmers in the turbulent areas of Xinjiang, China set up the lowest cotton purchase price from 2011 and began to store cotton.

The unintended consequence of this policy is many of China's Spin The factory abandoned China's raw materials and imported cotton yarn in despair.

In October of this year, the National Development and Reform Commission finally stepped in to solve the dilemma, prompting the market to have the expectation that China will reduce reserve cotton.

"Investors are trying to figure out how China will digest cotton reserves," said Fred Gale, a senior economist at Department of Agriculture in Washington. At present, China does not have a clear strategy. "

Industry executives say how much cotton China will sell today will depend on the quality of the cotton and how much the textile factory has to purchase the "old" cotton that has been stored for more than a year. In addition, the auction rule also limits the amount of cotton purchased by a single textile mill in order to prevent anyone from hoarding cotton and selling it again in the future.