Casting Reserves Will Lead to Domestic Cotton Market

Affected by the shift in the new deposit regulation on April 1, under the influence of rising quality of reserve cotton and falling prices, domestic downstream companies are basically in line with their auction tempo in January-July 2013. As of May 6th, China's reserve cotton management company had accumulated a total of 1,433,600 tons of outbound transactions, and the average daily transaction volume hovered around 30,000 tons. The average turnover rate was 30%, and the performance was relatively stable.

We know that, on the one hand, selling pressure in 2013/2014 is not weaker than 2012/2013. During the year, as of the end of March 2014, the national reserve capacity increased to 16 million tons, excluding 4.9 million tons that had been sold in the previous period. After the new regulations were adjusted, 11 million tons of cotton stockpiles remained to be disposed of in the national bank. If the national average inventory level at the end of the year is calculated at 4 million tons, and deducting the stock of cotton from this side, there will still be 7 million tons of cotton sold in the future. On the other hand, the annual storage period will be concentrated in the second and third quarters.

However, under the obvious pressure of dumping stocks, although dumping transactions have improved after the new regulations, the cumulative amount of dumped stocks as of the end of April was only 1.43 million tons. Compared with the high state treasury pressure, the pressure on stockpiling in the later period was quite significant. This has led to an increase in rumours recently announced by the local authorities on the details of the dumping rules.

Therefore, based on the pressure of the treasury and the urgency of the state's pressure to release the treasury, with the delayed recovery of downstream demand, with the increase in the quality of thrown cotton, it is expected that domestic cotton supply will continue to rise in April following the upward trend in April. The overall supply and demand fundamentals continued to increase the pressure of excess supply. In this year's market, we expect that cotton supply will mainly come from the state's throwing of reserves, and the actual progress of throwing stored cotton and related policy changes will all play a leading role in the domestic cotton market.