China has begun cotton auctions. And the country’s textile mills hope to pick up lower-priced fiber. China will offer 30,000 tons of cotton a day for sale until the end of August. The country is seeking to whittle down its large stockpile. Most companies have low stocks, as they expect cotton prices would drop with the coming state reserves auction. They are also confident that the quality of auctioned cotton would be quite good.
Last year, auctions were delayed from May to March, and the poor quality of the fiber in the first few sales, tightened supplies, leading to panic buying by mills and spurring a surge of almost 70 per cent in prices in just under nine months.
Traders are confident that the government will be able to meet its daily auction target this time, and prices will drop, at least in the short term. Still, hurt by price volatility last year, the industry is more guarded against potential risks. If prices were to go up, it would restrain demand and obstruct the goal of reducing stocks. The international market is closely watching China’s sales as it holds more than half of the world’s stocks in reserves and an increase in domestic supplies would further dent imports.