Grade Five Cotton Reserve Purchase launched; Half the Yield Entered Reserve

Last week, requirements for grade five cotton reserve purchase were clarified with target volume though no actual transaction was made yet. Cotton temporary reserve of 2012/13 season has surpassed 3.8 million ton, about 55% of the annual yield. With much higher reserve price than spot and futures prices, ginners were focusing on reserve trade. Domestic spot price climbed steadily due to insufficient high grade new arrivals in the market. The seed cotton procurement price edged higher, driving by recovery of cotton seed price. Most farmers were active to sell, while some were withholding.

On 5th December, in order to ensuring grade five cotton purchase in the disaster affected areas, requirements were clarified that, only big-bale ginners in the specific areas were authorized to participated in the grade five cotton transaction with reserve, and no entrust business could be performed by other companies; exclusively grade five cotton was allowed in single contract, no blends was allowed; the length could not be less than 27mm, 30mm or above would be took as 29mm. No actual transaction was done in the week starting from the announcement. By 7th December, temporary reserve of 2012/13 season totaled 3,814,950 ton, including 1,957,320 ton in Xinjiang and 1,231,980 ton in inland, with 625,650 ton from key enterprises. The top three traders of inland were Shandong by 8.1%, Hubei by 8% and Hebei by 5%. PCC reserve release totaled 38,285 ton cumulatively.

Currently, high grade new arrivals entered the state reserve, with scare market recourse available; domestic cotton spot price climbed steadily as raw material consumption increases from textile front. Last week, CC Index328 settled at 18,990 Yuan per ton, 73 Yuan up over the week. The futures market was stable, ZCE futures nearby contract CF301 would deliver in January, settled at 19,735 Yuan per ton, 115 Yuan down over the week. CNCE nearby contract MA1212 has average settlement price of 19,167 Yuan per ton, 7 Yuan up over the week.

Since December, driving by increase of cotton by-products, cotton seed sales price recovered, increasing company profit, and seed cotton procurement price nationwide. According to survey of CCA cotton processing industry branch, last week (3rd /7th December), weekly average procurement price was 8.12 Yuan per kilo, 0.07 Yuan up over the week. Seed cotton procurement in Xinjiang and Yangtze region come to later period, with final flowers unqualified for reserve trade; therefore procurement reduced in volume. In Yellow River regions cotton farmers were active to sell at the current price, though some still withheld.

At the same time this week, FC Index settled at 85.13 cent/lb. which was 13,675 Yuan per ton under 1% tariff, 5,316 Yuan lower than domestic equivalent; and 14,595 Yuan per ton under sliding duties, 4,396 Yuan lower than domestic equivalent.