BEIJING, March 5 China's textile mills have
worked off cotton inventory in the hope of picking up
lower-priced fibre when the government in the world's top
textile market resumes annual sales of state reserves on Monday
even after getting caught short last year.
China will offer 30,000 tonnes of cotton per day for sale
until the end of August, the National Development and Reform
Commision announced late last year, as Beijing seeks to whittle
down its large, ageing stockpile.
"Most of the companies have low stocks, as they expect
cotton prices would drop with the coming state reserves
auction," said Ye Jianchun, vice president of China Cotton
Textile Association, at an annual cotton industry conference
held in Beijing on Friday.
"They are also confident that the quality of auctioned
cotton would be quite good," Ye said.
Last year, delays in the auctions until May from March and
poor quality of the fibre in the first few sales tightened
supplies, leading to panic buying by mills and spurring a surge
of almost 70 percent in prices in just under nine months.
The most-active futures hit 4-1/2-year highs in
Industry insiders, however, think this year will be
A purchasing manager at a textile company in Shandong
province, a major producer of the fibre, said she only had one
month of cotton in stock, rather than the usual two to three
months of inventory.
"Last year, (the auction) was rushed. This year, (the
government) is better prepared," she said. She declined to give
her full name as she is not authorised to speak to the media.
Traders say they 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 (the government) meets its promise, in terms of the
volume and quality structure of the auctioned cotton, it will
benefit the market a lot," said Wei Gangmin, chairman of Henan
Tongzhou Cotton Trade Co Ltd, a cotton trader and processor in
China. The company has 11 ginning mills and two spinning mills.
"But if it can't, it will cause volatility. If prices went
up, it would restrain demand and obstruct the goal of reducing
stocks." Wei said.
The international market is closely watching China's state
sales, as it holds more than half of the world's stocks in
reserves and an increase in domestic supplies would further dent
(Reporting by Hallie Gu and Josephine Mason)