The state cotton reserves sales policy was announced on July 2. This round of reserves sales will start from July 5, and end on September 30, 2021, with a total planned selling volumes of 600kt.

According to relative regulation, the base selling price of the week during July 5 and July 9 is 15,501 yuan/mt (standard type price). Compared with current grade-3128 cotton on spot market, the base selling price is lower nearly 1,000 yuan/mt, and compared with the standard 3128 cotton price on auction, the actual reserved cotton sold will be lower above 1,000 yuan/mt. Therefore, the state cotton auction is indeed favorable for spinners producing low-count cotton yarn and conventional cotton yarn, and the competition may be fierce.

 

In terms of the reserved cotton quality last year, the color index of 2012/13 cotton is mostly the yellow stained and tinged cotton, the length is mostly above 27mm and the strength is mainly above 26gpt, which can meet the production demand of low-count cotton yarn and conventional cotton yarn 32S and 40S.

 

In general, the market supply will increase somewhat in short and medium run and the spot cotton digestion will slow down, with the daily selling volumes of reserved cotton during 9,000 tons and 10,000 tons, the lower reserved cotton prices. Moreover, the 2012/13 reserved cotton could meet the production need of low-count cotton yarn and conventional cotton yarn 32S and 40S.

 

Besides, the state reserves sales will suspend when the domestic cotton prices decline more than 500 yuan/mt for the three consecutive days, which makes the cotton prices not expect to fall sharply.

 

The market still has potential bullish factors, like the strong consumption in 2020/21 season, expected high seed cotton prices for 2021/22 season and expectations of lower global cotton production. In short, ZCE Sep cotton contract is likely to shiver around 15,800-16,500 yuan/mt, and in the medium to long run, cotton prices may move upward.