China Cotton Monthly Review – 28th November, 2012

October was the peak season for new arrival procurement and the harvest was closed generally. Reserve purchase increased in volume, and by the end of October, the total transaction volume of reserve was nearly 1.8 million ton, supporting the domestic spot price and seed cotton procurement effectively. The seed cotton procurement processed faster than former years apparently with active purchase and sale from ginners and farmers. Textiles were still cautious at raw materials with sluggish sale, thus the spot market was quite weak and leaving reserve as the main trade channel.

In October, weather conditions in most cotton areas nationwide were positive for cotton picking. According to survey to cotton growers in 13 major provinces by CCA, the total cotton yield was estimated 6.955 million ton, 4.4% Y/Y. By the end of October, the average harvest nationwide processed by 87%, 7.8% faster Y/Y. The average ratio between seed cotton procurement and production was 60.1%, 10.7% faster Y/Y, and that of Xinjiang processed fastest due to large reserve trade, and slower in Yellow River regions due to its poor quality.

As new arrivals accumulated rapidly, reserve trade increased in volume with total target of October of 2.08 million ton, and the actual transaction was 1.41 million ton, increased by 11 times than the same time last year, with transaction rate in Xinjiang of 98%. By the end of October, the cumulative reserve trade volume of 2012/13 season was 1.79 million ton, 73% by Xinjiang.

With strong support by reserve and improved seed cotton quality in the peak time, big-bale ginners were more active, and 90% participated, more than the same timeframe last year. In October, the average procurement price of type 328 was 8.54 Yuan per kilo, 1.3% up over the month, and 0.47% down Y/Y.

Contrary to reserve market, the spot market was sluggish in this traditional peak season of seed cotton trade, resulting in reduced commercial carryover stocks. According to CCA, by the end of October, national commercial carryover stocks was 513,000 ton, 8.4% less over the month, and 17.8% down than last October.

Domestic price was relatively stable, monthly average of CC Index328 in October was 18,693 Yuan per ton, 0.3% up over the month, and 5.2% down than last October. International cotton price continued the weak performance, enlarging the price gap foreign and abroad, thus import cotton regained volume. According to Customs, China imported cotton of 272,000 ton in October, 3.5% more over the month, and 7.8% up Y/Y.

Orders for textiles recovered moderately in October. Encouraged by stable cotton price, the price of cotton yarn edged upward slightly, and inventory of raw materials and finished products reduced, and export of textile and apparel monthly increase rate recovered slightly Y/Y. according to Customs, in October, export of textile and apparel valued 22.75 billion USD, 15.8% up Y.Y, and 9.5% less over the month. The 112nd Canton Fair witnessed reduced participants and declined transaction values. The export outlook of textiles and apparels next year was unpromising; more mills shut down or struggle with difficult times. According to Bureau of Statistics, yarn output of October was 3.03 million ton, 1.7% up over the month, and 18.2% more Y/Y.

According to Cotton Temporary Reserve Plan of 2012/13 Season, government department concerned authorized purchase for type 5 cotton in five designated regions at premium of 13% with standard type. This policy aims at easing the difficulty of seed cotton sales in natural adversity stricken areas, limiting the losses of growers. Currently, the annual balance was studied under the principle of protecting growers?? interests and providing raw materials for textiles.