2018 China state cotton auction has ended on Sep 30. The daily selling volumes put on auction maintained at 30kt and total selling volumes approached 2.514 million tons, including 1.561 million tons of Xinjiang cototn, with trading proportion of 58.3%. Trading prices were averaged at 14,732yuan/mt. After this round of auction, the remnant stocks of reserved cotton in the state warehouses are estimated at about 2.75 million tons. Cotton prices experienced sharp fluctuations in May, and since June, only textile mills were allowed to take part in the auction, and China announced to allocate additional sliding-scale duty quotas. In end July, the state cotton auction was prolonged from Aug to Sep. Chinese yuan weakened apparently during the period and there were several rounds of trade dispute between U.S. and China, dampening the consumption in general.
|Big events during 2018 state cotton auction (Mar 12-Sep 30)
||Cotton VAT rate would be cut from 11% to 10% from May 1, 2018
|U.S. and China issue the list of products valued $50 billion to levy additonal 25% tariff
||Only textile mills were allowed to take part in the auction from June 4
||China decided to allocate 800kt of sliding-scale duty quotas
||U.S. decided to levy additional 25% tariff on Chinese goods valued $34 billion from July 6
||China decided to levy additional 25% tariff on Chinese goods valued $34 billion from July 6 (incl. cotton)
||The result of sliding-scale duty quota declaration was delayed to be released
||U.S. announced to take another 10% tariffs on Chinese goods valued $200 billion (incl. textiles)
||The state cotton auction was prolonged to Sep 30
||U.S. announced to revise up the tariffs to 25% on Chinese goods valued $200 billion (incl. textiles)
||China issued to add additional tariffs on $60 billion U.S. goods
||Turkish Lira depreciated sharply and Turkey experienced financial crisis
||U.S. decided to add additional tariffs on Chinese goods valued $200 billion from Sep 24 (incl. textiles)
||China decided to add additional tariffs on U.S. goods valued $60 billion from Sep 24
By Sep 30, 2.514 million tons of reserved cotton have been totally sold during the 2018 state cotton auction, with trading proportion of 58.3%. Trading prices were averaged at 14,732yuan/mt, and after the auction, about 2.75 million tons of reserved cotton are estimated to be left in the state warehouses. From June 4, only textile mills were allowed to take part in the auction and the reserved cotton could not be resold, so as traders were not allowed to participant, trading prices were under control. The trading proportion was closely related with the selling volumes of reserved Xinjiang cotton, to have positive correlation.
Among the total trading volumes, reserved Xinjiang cotton was transacted about 1.561 million tons, with trading proportion of 93%, and upcountry cotton sales reached 949kt, with trading proportion of 36%. Xinjiang cotton was mainly transacted at high price level, so the transactions of upcountry cotton influenced the total transactions apparently. Floor bidding prices also had some influence on transactions.
For trading prices, as there were not traders to purchase after June 4, mills had more choices, and trading prices were under control. Average trading prices of Xinjiang cotton were about 15,048yuan/mt, and that of upcountry cotton were 14,273yuan/mt, with the price spread at 775yuan/mt. In Sep, large quantity of Xinjiang cotton was put on sales, so the price spread narrowed due to ample supply and mixed quality.
According to our estimation, the remnant stocks of reserved cotton may be about 2.75 million tons, including 1.33 million tons of Xinjiang cotton and 1.42 million tons of upcountry cotton.
|State cotton auction
If the state cotton auction continues during Mar and Sep 2019, based on the average trading volumes of 2.80 million tons during 2016-2018, there will be no reserved cotton in the state warehouses after 2019 state cotton auction, if there is no state cotton reserves.