Chinese cotton futures scaled fresh multi-month highs, despite the huge volumes of cotton being pushed into the domestic market.

Prices for the fibre are surging amid a broad Chinese commodity rally, fuelled by currency-weakness.

September cotton futures on the Zhengzhou exchange rose as high as 14,532 yuan a tonne, a 21-month high for the second-month contract.

The contract closed up 14,395 yuan a tonne, up 4% on the day.

State auctions flood market

The rise in prices comes despite a the huge volumes flowing onto China's domestic market, from auctions of state reserves accumulated due to a now-defunct price support programme.

Wednesday's auctions saw all 18,000 tonnes of cotton on offer snapped up, following full uptake of 21,700 tonnes offered on Tuesday.

Prices charged for the cotton have also been rising from last week.

Wednesday's offer saw cotton bought at an average of 13,202 yuan, about $1,986 a tonne.

Tuesday's offering was sold at 12,896 yuan, compared to the 12,230 yuan price achieved at an action last week.

Enthusiastic uptake

These Chinese auctions have now shifted over 1m tonnes of cotton, far exceeding auctions last year, which saw minimal uptake.

But as analysts have been pointing out, a hefty uptake of the offered cotton is hardly a bearish sign, even though it eases short-term pressure, as it underlines the appetite of textile mills for fibre.

And the auctions have especially demonstrated the demand for higher grade cotton, of the variety that the US exports.

Currency boost

The Chinese yuan has been sliding against the dollar since Friday, as the shockwaves of an unexpected UK decision to exit the European Union fuelled a worldwide shift away from risky assets.

The yuan plumbed fresh five-and-a-half year lows on Wednesday, although it recovered a little, to finish unchanged at 6.6436 to the greenback on the currency spot markets.

The weaker yuan is broadly supportive for local-currency-denominated commodity prices, spurring  a rally in Chinese markets this week, which has endured as the country's central bank looks content to sit on the side-lines, rather than intervene to support the currency.

As well as making imports more expensive, the weaker yuan could also be a boon to exporters, making their manufactured goods more expensive.

"China's textile industry will be more competitive as a result and will, perhaps, need more cotton," said Tobin Gorey, at CHS Hedging.

Broad commodity rally

September iron ore futures on the Dalian exchange hit a two month high, closing the session at 418 yuan a tonne.

And September soybean futures on the Dalian started the session at their highest level since October of last year, although they trimmed gains to finish up just 1 yuan on the day, at 3,960 yuan a tonne.

September white sugar futures in Zhengzhou hit their highest level June 2015, finishing the day at 5,885 yuan a tonne.