China Cotton Index Monthly Report –August, 2012

Monitored by: Beijing Cotton Outlook Consulting Co., Ltd.
Monitored Subjects: 100 cotton textile companies in 18 major cotton production and consumption Provinces of China

As the market resource reducing, international market stabilizing and new seasonal reserve approaching, market confidence of August was slightly restored and domestic spot price kept increasing; while at the same time, millers were still very cautious with raw material purchase in their sluggish sales.

Influenced by weaken demand, cotton price treaded a down line during 2011/12 season, though domestic price decreased less than international one thanks to reserve policy. CC Index328 has annual average price of 19,116 Yuan per ton, down by 25.2% Y/Y.

1, CC Index in August
1.1 Increasing price
During early and mid-August, influenced by rumors of reserve release, millers were very cautious with cotton purchase, then the spot market was sluggish with trade and price rose slightly. By the end of the month, government announced that certain amount of reserve cotton of 2011/12 season would be released via auction to cotton millers at the base price of 18,500 Yuan per ton for type 328 standard since 3rd September. As the date approaches, spot price kept increasing. By the end of August, CC Index328 was 18,520 Yuan per ton, 197 Yuan up over the month, 1.1% higher. The monthly average price was 18,394 Yuan per ton, 163 Yuan up over the month, 0.9% up, and 935 Yuan down Y/Y, 4.8% down.

1.2 Monthly average price recovered in major producing areas of inland
Monthly average price of type 328 and 429 in Shandong provinces were 18,396 Yuan per ton, 0.9% up over the month, and 17,556 Yuan per ton, 0.8% up separately. The monthly average price of type 328 and 429 in Hebei province was 18,663 Yuan per ton, 0.7% up over the month, and 18,063 Yuan per ton, 2.6% up over the month separately.

Grade premiums narrowed down.
In August, taking CC Index328 as the benchmark, premium of type 129 decreased by 1.0% from 7.1% by the end of July to 6.1% of August, and type 229 decreased by 0.6% from 5.9% of July to 5.3% of August. Premium of type 429 in August was -3.6%, 0.1% less than -3.7% of July, and type 527 was -12.7%, unchanged.

2. Major influential factors on domestic cotton price in August
2.1 still sluggish yarn market and tight financial line of millers
In August, textile price climbed moderately, driven by cotton price increase; however, downstream digestion capacity was limited with rare orders, low or zero operation rate. At the same time, miller generally felt the tightness of their financial chain with delayed loans for the purchase of cotton.

2.2 reserve cotton release was confirmed
Late August, government announced the policy for reserve cotton release, in order to ease raw material pressure of cotton millers, which at the same time restrained market cotton sales, millers were preparing for the auction and left market cotton out of interest.

2.3 CNCE edged upward mainly, and monthly average prices had mix tone
In August, CNCE contracts moved up mainly, and monthly average prices had mix tone. All contracts rose slightly except MA1212 monthly average declined by 13 Yuan to 19,312 Yuan per ton, the nearby MA1208 monthly average was 18,864 Yuan per ton, 0.6% up over the month.

2.4 Increased international cotton price
FC Index M has monthly average price of 88.29 cent per pound, 1.80 cent up over the month; which was 14,226 Yuan per ton under 1% tariff, 4,168 Yuan lower than domestic equivalent; and 15,022 Yuan per ton under sliding duties, 3,372 Yuan lower than domestic equivalent, separately 152 Yuan and 81 Yuan down over the month.