China, the world's top cotton consumer, will start to sell its high-quality reserves of the fibre, which should spur purchases by textile mills after Beijing's stockpiling tightened domestic supplies, government officials said on Thursday. Aggressive sales by Beijing, which holds nearly 60 percent of global cotton stockpiles, could hurt world prices.
ICE cotton fell over 1 percent on Thursday as US traders braced for the sale, which they feared may dampen demand for foreign fibre from mills in the world's No 1 textile market. Starting on Friday, the government will offer cotton imported in 2011 and purchased from the 2012 harvest, and will allow textile mills to buy up to 8 months' worth of consumption, the China National Cotton Reserves Corporation said.
"There is a shortage of high-quality cotton in the domestic market," said Wang Guangqian, an analyst with Dong Wu Futures. "Cotton quality offered this time will be better than that offered in previous months. Textile mills will be active in bidding." Beijing has said it would offer a total of 4.5 million tonnes for the auctions to last until end of July. It also agreed to issue one tonne of cheap import quotas for those mills which buy 3 tonnes of state cotton reserves, traders and analysts said.
A government official said at the end of March that Beijing would increase state cotton sales this month. But raising the quality of the cotton on offer - traders said it would likely be from Australia and Brazil - will help mills, which are struggling to secure domestic fibre supplies. In auctions earlier this year, the state has sold only a portion of the total because mills were not interested in the lower quality, older fibre on offer, traders have said.