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Insight | Time:Jul 17 2017 9:24AM
2017 China state cotton auction analysis
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2017 China state reserves sales have commenced for four months from March 6, 2017. The arrivals of 2016/17 cotton have ended and the available supply on the market becomes limited. Currently, state cotton auction is the major way for the market supply, which still attracts players’ attention. Details about the state cotton auction in the four months are analyzed.

1. Selling volumes
Since the start of cotton auction, the daily selling volumes of reserved cotton maintain at around 30kt, but daily trading proportion fluctuates a lot, at 42-100%. Till July 14, CNCRC (China National Cotton Reserves Corporation) planned to sell 2.77 million tons of reserved cotton, and the actual trading volumes were 1.88 million tons, with trading ratio of 67.97%.

2. Reserved Xinjiang and upcountry cotton
Reserved Xinjiang cotton was basically 100% transacted per day, but daily selling volumes reduced from 15kt to 10kt. The reduction of planned selling volumes of Xinjiang cotton triggered buyers’ worries.

Trading ratio of reserved upcountry cotton was only at 100% in the first two trading days and then fluctuated largely later, at 12-73%, mainly influenced by the market mindset and the total selling volumes.

The tendency of Xinjiang cotton prices was in line with that of upcountry cotton, and their price spread exceeded 1,000yuan/mt in May. In general, their price spread was averaged at 800yuan/mt. Currently, mills have started to refill stocks and were active to purchase reserved cotton. But with the reduction of selling volumes of Xinjiang cotton, part of mills turned to purchase upcountry cotton, which may be supportive to the transactions of upcountry cotton. 

3. Floor bidding price and average trading prices
The floor bidding price of reserved cotton is relative to the domestic and international cotton prices. Looking from the chart, the floor bidding price poses obvious impact on the trading prices of reserved cotton. From early June, floor bidding prices continued to move lower affected by the sharp decline of international cotton prices. Viewed from current market situation, domestic and international cotton prices see no obvious upswing and downswing trend, so floor bidding prices may have no big change.

4. Participation of mills
The proportion of spinning mils to take part in the auction have no big change, at 55-60%.

5. Transactions by cotton producing regions
By Jul 10, trading volumes of reserved Xinjiang cotton took the largest shares, at 63.9% of the total trading volumes, followed by the upcountry cotton in Hubei, Shandong and Hebei. Trading volumes of Hubei-origin upcountry cotton were slightly higher than that of Shandong-origin and Hebei-origin cotton, indicating that cotton from Hubei was mostly accepted by buyers.

6. Transactions by provincial warehouses
The trading volumes of reserved cotton in the provincial warehouses reflected the local mills’ demand for cotton somewhat. The largest trading volumes were in Hebei, next were Shandong, Hubei, Henan and Jiangsu, with a total proportion of 87%.

To sum up, state cotton auction has been commenced for four months and looking from the trading ratio, the market supply and demand is basically balanced. The trading volumes of reserved Xinjiang cotton account for nearly two thirds and later, the selling volumes of Xinjiang cotton are less than previous period. Looking from the supply structure or the trading ratio, the possibility to see state cotton auction extension to Sep is limited. Currently, mills have already started to refill stocks, later, the trading prices and trading ratio may be firm.
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