Weekly Report: Reserve Policy Dominated Market and Attracted Attention?? Annual Review of 2013

During the year of 2013, global economy was on its slow pace of recovery, while at the same time, domestic economy slowed down. Cotton demand kept sluggish for the year due to weak textile and apparel consumption worldwide, and domestic cotton price was steady supported by reserve policy. Most of the seasonal yield went to state reserve stock and the release of reserve cotton together with import cotton were the major purchase channel for mills, cotton spot market seldom witnessed transaction. On 1st September, new cotton quality system was implemented, China Cotton Alarm System adjusted its indexes accordingly, and the new CC Index was issued in October and settled at 19,534 Yuan per ton by the end of the year, 61 Yuan up than this first day issuance.
Reserve purchase
By the end of March, reserve purchase of 2012/13 season closed, and the accumulative buying was 6.5 million ton, about 90% of the seasonal yield. In April, Temporary Cotton Reserve Purchase Plain in 2013/14 Season was announced by government, for reserve purchase, the warehouse delivery price for standard grade lint was 20,400 Yuan per ton, and new national cotton quality standard was implied for the reserve cotton quality requirements. In September, the 2013/14 reserve purchase commenced and 4.85 million ton was bought by reserve till 31st December. Regulations and punitive strategies were set for frauds in reserve cotton transaction by government departments concerned.
Reserve release
To meet textile demand, the first round of reserve release started from January to July, 2013, and 3.72 million ton was sold with more than 70% of domestic cotton. On 28th November, reserve cotton auction launched for the second round, and by 31st December, 2,570,000 ton was sold with transaction percentage of 47,77% due to old season resources.
Impact of reserve policy
The double effects of reserve policy were demonstrated more clearly as time went by. On one way it functioned in protecting cotton growers’ interest; while on the other way, it caused large price gap between foreign and domestic cotton prices, and reduced market activity. The rising cost of textiles also drove out a large number of orders to Southeast Asia, and some mills chose to import foreign yarn directly in low price, which buoyed cotton yarn import in past two years. In recent central rural work meeting, government planned to adjust current reserve policy and make trial for target price subsidy on soybean and cotton, and the details of the new policy were still yet to announce.
Last week (30th December – 3rd January), CC Index 3128B settled at 19,534 Yuan per ton, 1 Yuan down over the week. Currently, seed cotton procurement was generally closed. According to CCA cotton processing industry branch, weekly average price for Xinjiang 3128 equivalent seed cotton was 8.7 Yuan per kilo, 0.1 Yuan up over the week; inland 3128 was 8.5 Yuan per kilo, 0.01 Yuan up over the week.
By 3rd January, reserve purchase of the season accumulated to 5,016,540 ton, comprising of 1,977,200 ton of Xinjiang cotton and 1,345,890 ton of inland cotton and 1,693,450 ton via large key enterprises. Reserve release auction offered 585,800 ton for sale, while the actual transaction was 280,400 ton, with 214,600 ton of domestic cotton at 41.3% of transaction percentage, and 65,800 ton of import cotton at rate of 98.9%.
As for import cotton price, by weekend FC Index settled at 93.82 cent/lb., 0.64 cent up over the week.