Cotton prices have slightly fallen on the international market after China has announced that its official sales from state reserves will resume in the next week. Chinese buyers are however still expected turning to the US crop and therefore pushing up New York futures to higher levels.
Cotton prices have stayed firm in the past week in New York, with key contract July 19 only losing 0.57 cent per lb or 0.73%.
The week has been dominated by the announcement in China that official sales for states reserves will resume as of May 5th and will last until September 30th.
In theory, this could mean that demand for US cotton will be weaker than previously expected, as China is still able to supply its spinners with its own reserves.
Actually, the period for buying from state reserves has been significantly reduced this year, as sales had started two months earlier in 2018.
In addition, available quantities will only be 10,000 metric tons per day this year, far below the 30,000 MT of last years.
Traders will also be allowed to buy along with spinners, which will support prices during the sales.
Cotton officials in China are obviously considering their reserves have reached a minimum level and should be preserved to be able to regulate the market prices in the coming years.
They could even be expected purchasing foreign cotton in the coming period to maintain official stocks at their current level.
This would be in line with a future trade agreement with the United States committing China to buy larger quantities of US agriculture products.
As a consequence, the announcement of official sales in China has not depressed international prices.
China had previously allocated 800,000 metric tons of additional import quotas for letting its domestic yarn industry buying foreign cotton entering the country at competitive import tariffs.
New York prices could further rise as a result when Chinese buyers will effectively enter the market.
In the past period, Indian buyers have been the main support of the New York market, still ordering 74,600 running bales in the week ending April 18th on a total of US export sales reaching a high level at 239,000 RBs for the current season.
Turkey, Vietnam and Indonesia have also bought large quantities of US cotton.
In China, Brazilian and Australian cotton still attract strong interest from importers.
As reflected by our below chart, the Brazilian prices have sharply dropped in US$ terms in the past three months by contrast with surging Indian prices.
Cotton has however stopped rising on India’s domestic market, after reaching excessively high levels and with buyers consecutively turning to foreign cotton.
In Pakistan by contrast, cotton prices have further climbed in the past week in rupee terms, due to strong demand from textile producers.
The market is being boosted by a duty-free agreement concluded with China and due to be implemented as soon as July 1st.
Source: Emergingtextiles
