China Extends Cotton Auction Through September

Industry news

China Extends Cotton Auction Through September

China's annual auction of cotton will run a month longer than planned because of a 47% run-up in prices over the past five months and complaints of shortages by mill owners. The Chinese government said that daily auctions, which began May 3, will continue through September rather than the end of August, and it is forecasting it will sell more than the two million metric tons it initially targeted. "To guarantee the cotton supply and meet the textile mills' cotton demand, 2015-16 China reserved cotton auction will be extended from August 31 to September 30, 2016 and the total selling volumes are not limited to 2 million tons," according to the announcement released by the National Development and Reform Commission and Ministry of Finance on August 5, 2016.

The news that more cotton will be made available did little to damp the market. But traders say more was needed to meet an annual demand of 7 million tons given output and imports are on the wane. The extended timetable comes after concerns were raised in the market by industry groups about the growing shortage of the commodity in the mainland. "The market is mainly being supplied by the auctions. But because of the amount being sold and the slow speed of delivery, there is not enough to meet market demand and overall the cotton market is tight, particularly high-grade materials," said the China Cotton Association, a trade group for cotton farmers. "Business inventories continue to decline."China had sold 1.7 million metric tons of cotton as of August 5 through the auctions, or 15% of its 11 million metric ton stockpile. Of that, 296,000 metric tons was imported cotton while the remainder was domestic product, according to China Cotton Information Network statistics.

The outcry among mill owners for access to more cotton is partly a result of the surge of middlemen hoarding cotton stock. But while more supply is good news for China's mill owners, it doesn't change expectations that China won't be ramping up its cotton imports anytime soon. "Their imports have been falling quite dramatically over the last couple of seasons. But it's going to take a while for them to work through what they have sitting in their stockpiles," said Georgia Twomey, commodity analyst at Rabobank. "Over the next couple of years, imports will be subdued," she added.