Sep 19, 2023
The significant price increases of ZCE cotton from June to July were closely related to market rumors of low inventory levels in Xinjiang's warehouses. As a result, measures were taken to alleviate supply shortages. The state cotton reserves sales policy was released on Jul 18 and the 750kta sliding-scale duty quotas were announced to be allocated on Jul 21.
In terms of the state cotton auction, from Jul 31 to Aug 10, 90kt of reserved cotton was planned to be sold, and if the daily selling volumes keep 10kt and are fully transacted, by end Aug, 240kt of reserved cotton was sold, which could ease the supply tightness somewhat. But if the state cotton auction ends in end Aug and mid-Sep, it will only provide a moderate alleviation to the spot supply. If the state cotton auction continues in Sep and Oct, assuming a daily selling volume of 10kt and full transactions, a total of 440kt will be released by the end of Sep, and a total of 630kt will be released by the end of Oct. This will have a more noticeable effect in relieving the tightness of the spot market supply.
For cotton quotas, the quantity of quotas under 1% tariff is 894kt in 2023 and with the 750kt of sliding-scale duty quotas, the total quotas are 1.644 million tons. If the quotas are fully used, the supply tightness will be improved apparently, but the usage of quotas depends on the price difference between Chinese and international cotton. If international cotton prices are firmer later and price difference narrows within 500yuan/mt, then the imported cotton supply may be limited. Besides, in terms of the cotton imports in recent months, cotton imports may remain below 100kt in Jul, and recover somewhat in Aug. The yearly growth of cotton imports in 2023/24 season is needed to see the price difference between Chinese and international cotton.