China to cut floor price for state cotton sales to ease stocks

China is cutting by 4.2 percent the floor price at which buyers can bid for cotton auctioned from its state reserves, a move that may help ease bloated stocks at the world's top consumer of the fibre by speeding up lacklustre sales. From April 1, lowest bids can be made at 17,250 yuan ($2,800) per tonne compared to the current floor price of 18,000 yuan for standard-quality cotton, according to the China Cotton Association. This is the first reduction in the floor price since China launched daily auctions from its reserves in November.
High prices at the auctions have meant the government has been able to sell only 36 percent, or 684,671 tonnes, of the total offered in the auctions so far. Brisker sales from state reserves are likely to pressure cotton imports by Chinese textile mills and push down global prices of the fibre. Cotton futures on the ICE exchange rallied on Friday and marked a third straight weekly gain, fuelled by worries over tightening supplies in the United States, the world's top exporter.
"The (floor price) move will help expand sales of state cotton reserves. Cotton supplies in the market have dried up and mills have to buy from state reserves," said Wang Guangqian, an analyst with Dong Wu Futures. The cotton association said in statement on its web site that the move was aimed at guaranteeing supplies to the Chinese textile mills.
Beijing plans to end its multi-year cotton stockpiling program this year and instead shift to direct subsidies to growers. The stockpiling has hurt Chinese mills by pushing up domestic prices while benefiting overseas suppliers, whose prices are significantly cheaper.
China will complete its current season stockpiling by the end of March, when the government is set to end the season with an estimated 12.6 million tonnes of the fiber in its reserves, or 60 percent of global stocks, according to the US Department of Agriculture. The huge stockpile is raising concerns about its broader impact. China's top agriculture bank has urged Beijing to speed up the sale of its state grain and cotton reserves, now at record high levels, to help ease the bank's mounting debts, state media reported last week.