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Chinese mills want reserve cotton

China’s mills want more cotton to be released from state reserves as fewer quotas for low-tariff imports and higher demand for local yarn tighten supplies.

Greater dependence on reserves at the world’s top importer could dent a rally in global cotton futures that hit a two-year high this month. But in the long term, it could be bullish for prices as China runs down its massive stockpiles.

Already 1.57 million tons have been sold via auctions, nearly 100 per cent of the volumes offered since sales started in May, but traders say more is needed to meet an annual demand of seven million tons given output and imports are on the wane.

China's January-June cotton imports more than halved from a year ago.

Strong demand for reserve cotton, estimated at more than half of global stocks, follows last year's dismal sales when the government shifted just 3.4 per cent of its stocks due to high pricing and a slowing economy.

Bids from China's mills, which cleared out stocks on hopes the government would sell at lower prices to attract buyers, as well as from traders have led to stronger sales this year.

China had said it would increase the daily volumes on offer to 50,000 tons if more than 70 per cent of the auctioned volume was sold three days in a row. However, the maximum cotton offered has remained at 30,000 tons. 

 
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