China’s State Reserve sales for 2020 concluded on September 30. Auction sales began July 1 with an announced target of 500,000 metric tons (tons) or 2.3 million bales. A total of 504,000 tons sold as nearly all lots offered were sold. Xinjiang cotton accounted for 283,000 tons of sales, of which just 23,000 tons were Production and Construction Corp (XPCC) cotton.
This year’s reserve sales were conducted in a manner similar to recent years. A base price was set each week at the previous week’s average of 1) the AIndex with 1% duty andVAT paid; and 2) the average of two domestic mill spot prices. The base price was adjusted for each lot offered using a set of premiums and discounts. A catalog was published each day, which described quality parameters, weight, and warehouse location of each lot that would be available the next day.
The cotton made available was from the 2011, 2012, and 2013 crops. Over 250 companies purchased cotton from the auctions, two-thirds being textile mills and the remainder traders. The average premium paid above base price was 9.5percent; 55,000 tons were purchased with a premium of over 15.0 percent. It is believed that just over 2.1 million tons (10.0 million bales) remain in the State Reserve.
As in previous sales, premiums for Xinjiang cotton were generally higher compared with other regions. Roughly one-half of the remaining reserve stocks are from the 2011, 2012, and 2013 crops – the other one-third being 2019 Chinese and imported cotton (primarily Brazilian). The announcement for the auctions noted that they were part of rotation program for the reserves in which the State Reserve would replace older cotton with new-crop cotton.
As in the past, the State Reserve is expected to purchase both domestic and foreign cotton. Recent activity indicates that purchases and imports of foreign cotton, specifically U.S. cotton, has begun in the last couple of months.