A few days ago, the State Food and Strategic Reserve Administration and the Ministry of Finance issued Announcement No. 1 of 2020 - “Announcement on Doing a Good Job in the Preparation of the Central Reserve Cotton Rotation Sale”. The announcement said that in order to optimize the structure of the central reserve cotton, ensure good quality, and enhance the central reserve’s ability to regulate and control, part of the central reserve cotton will be rotated in 2020, and officially started on July 1.

On July 1, the reserve cotton rotation plan was 8,035.23 tons, the actual turnover was 8,035.23 tons, the turnover rate was 100%, and the average turnover price was 11,139.3 yuan/ton. On July 2, the reserve cotton rotation plan was 8,036.469 tons, the actual turnover was 8,036.469 tons, and the turnover rate was 100%. There were 35 companies participating in the turnover, with an average turnover price of 11,372 yuan/ton.

 

So, What signals are released by the 500,000-ton cotton reserve rotation policy? How does it affect the market?

 

The current round of central reserve cotton rotation is from the national legal working day from July 1 to September 30, 2020. The total amount is about 500,000 tons. In principle, the listed sales are about 8 thousand tons per working day.

 

It can be seen from the reserve cotton rotation policy that the price mechanism of this reserve cotton rotation policy aims to maintain the stability of the market as far as possible, and is embodied in three aspects. One is to give full play to the market mechanism, and the listed reserve rotation price will follow the market. The second is the first use of the price fuse mechanism. The third is to reserve enough policy space to give the market a “reassurance.”

 

With the start of the reserve cotton rotation, China’s textile enterprises will purchase more cost-effective cotton resources, so that China’s cotton yarn can gain market competitive advantages in the process of competition with foreign cotton yarn. In addition, experts believe that the rotation policy is a further deepening of the supply-side reform of the cotton industry. China, as the world’s second largest cotton-producing country and the largest consumer country, this policy release is more meaningful because it plays a positive role in guiding market recovery.