Global Markets: Cotton – Good Start to China State Reserve Sales

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China’s 2019 State Reserve sales were strong during May although the quantity weakened during the first week of June. Sales started on May 6 with a target of selling 1.0 million tons (4.6 million bales) by September. The State Reserve’s total beginning volume is estimated at 2.7 million tons. The mechanism for sales is similar to that used in the previous 2 years: about 10,000 tons in lots are listed daily, ranging between 50 and 400 tons. The lots are auctioned with a reserve price based on the weekly average of foreign cotton (A-Index) and domestic prices adjusted for quality.

As of June 6, about 220,000 tons had been sold representing about 85 percent of the total offered. The majority was sold directly to spinners and the rest to traders with roughly half of the sales having been Xinjiang cotton. The sales rate in May was over 90 percent, but dropped sharply in the first week of June as the base price increased slightly. The average premium above the base price has also been declining from 6-8 percent in the first couple of weeks to less than 1.5 percent last week.

It is expected that nearly all of the available cotton will be sold by the end of the sales period. These anticipated sales are reflected in the current USDA forecasts for both China and world consumption and trade.

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