Tight cotton supply in China, the world's largest consumer, after the government sold all of a planned release of its reserves, drove local futures to a record high on Tuesday. Dealers said the supply tightness could worsen because heavy snow in the country's largest cotton-growing area of Xinjiang in the north-west may block transport of the new harvest out of the inland region to consuming provinces in the east.
China's cotton output this year could fall by more than 10 percent to between 6.5 million and 6.7 million tonnes, government authorities said. "The government has finished its sales of reserves and there are no plans for further sales," said Dong Shuangwei, a researcher with Capital Futures Co Ltd. The most-active May contract at the Zhengzhou Commodity Exchange traded as high as 16,715 yuan ($2,447) per tonne.
Trading volume hit record of 644,600 lots (one lot is 5 tonnes). Tight supply in China, the largest importer of US cotton, also pushed up New York cotton futures to close sharply high on Monday. Transport of Xinjiang cotton could also be impeded by the busy passenger transport season by rail ahead of the Lunar New Year, which falls on February 14, said Dong. Tight supply and a low domestic harvest have prompted Beijing to increase import quotas for next year.
Beijing has sold 2.62 million tonnes of cotton from state reserves this year, but traders said they did not expect the government to release more, even though reserves were believed to total about 1.5 million tonnes. Textile mills with import quotas had taken 200,000 tonnes of imported cotton from bonded zones, together with bigger imports seen for January, which should cap price rises, said Dong Shuzhi, a manager with Jinshi Futures Co Ltd.
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