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China to Sell 1 Million Tons of Cotton From Reserves This Summer

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China said earlier in June that it would start selling its cotton stockpile this year, and the plan for that release, revealed Tuesday, is to auction off 1 million tons, or 4.6 million bales, of the fiber to start.

The country’s National Development and Reform Commission (NDRC) made the announcement, confirming expected estimates about volume and prices that have been circulating since the statement about the sale.

For 2011/12 cotton stock, the price will be $0.97 per pound, 2012/13 supply will sell at $1.04 per pound and foreign cotton held in reserves will be priced at $1.11 per pound.

“Something that we will need to watch as these auctions start is what the activity level might be at Chinese mills,” Cotton Incorporated senior economist Jon Devine said.

In previous auctions, he explained, widespread complaints about the quality of the cotton being released caused some mills to balk at buying those supplies. To help get the cotton moving China offered incentives tied to import access.

“Over the past year, Chinese officials have indicated that only the minimum amount of import quota was issued. If reserve sales are very slow, those incentives could eventually reappear,” Devine said.

The possibility of rotating reserve stocks is another thing worth paying attention to. Historically, Devine explained, the Chinese government has replaced older supplies with newer ones. It isn’t clear yet whether that will be a possibility in the future, but if it is, that could impact the availability of current and future Chinese harvests.

“The bottom line appears to be that the changes made in the current crop year (2014/15), where the Chinese imports have placed increased emphasis on the use of domestic supplies will be sustained. The corresponding sustained reduction in global import demand has helped stocks outside of China increase and allowed prices to shift lower,” Devine said. “As long as China keeps imports low and uses reserves to fill any gaps, and as long as the rest of world produces a surplus of cotton, stocks outside of China should remain strong and prices could be expected to remain low.”

Devine elaborates on changes to the Chinese Cotton Policy in a new podcast here.

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