A tepid response from mills toward bidding in China’s cotton reserve auctions remains the consensus view from the market, resulting in a declining average price this week. Over the first four days of the auction, hardly 59,623 metric tons, or 7.4% of the 600,000 metric tons allocated for bidding has been sold, at an average price of 18,186 yuan per ton. The commencement of the auction process is prompting some skittish merchants to lower spot prices in order to avoid the risk of paying storage costs, but few mills seem active buyers at present. The short supply of high grades is causing some mills to focus attention on the reserve auction, but few are active buyers, at least yet.
If daily auction volume continues to average roughly 15,000 tons, the 600,000-ton reserve will conclude in roughly forty trading days, near mid-October. By that time, new-crop supplies will begin to trickle into the market. While we acknowledge the auction is young, we remain intrigued at the lack of co-movement between average auction prices and ZCE futures, as the graph below demonstrates.
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