China Revises Cotton Reserves Sales’ Policy

With the cotton auction now in motion over a couple of months and the continued higher price of cotton on the domestic market, China’s reserves has decided to make some changes with implementation. First, an additional 5,000 tons will be added to the daily offered amount. Second, warehouse space in major consumption markets will be increased. Third, middlemen traders who have been entrusted as agents for the textile mills will now not be allowed to take part in the daily reserve’s auction. And last, to increase the distribution of Xinjiang stocks, a transportation subsidy will be given to lots within the province that must be transported to the eastern based mills. The powers that be have made these changes in light of a much stronger than expected domestic market as prices have continued to move higher, despite the additional tonnage released on the market. To make matters worse, the logistical movement of cotton from warehouse storage to deficit areas has not proceeded as smoothly as the reserve would like. Further, warehouse space that was supposed to be guaranteed has, in some instances, not been there at all. The absence of the middlemen should help relieve prices a bit though it may make it more difficult for the mills that are still in precarious financial shape. As for the transportation subsidy, it is an absolute necessity to help the reserves move more cotton from the west to the eastern based mills as well as reduce the landed the mill price. We expect the reserves to act far more aggressively with the movement of cotton in China until harvest begins.