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UPDATE 1-First China cotton auction since price cut sees strong demand
April 2, 2014 / 2:26 AM / 4 years ago

UPDATE 1-First China cotton auction since price cut sees strong demand

* State stockpiler sells nearly 80 pct of cotton on offer

* That is more than double rate in last round of sales

* Cotton mkts around world watch as China unwinds stockpiling (Adds comment, detail)

BEIJING, April 2 (Reuters) - The first auction of raw cotton by China’s state stockpiler since cutting its minimum bidding price met with strong demand on Tuesday, with appetite at future sales expected to stay robust as the country looks to offload its massive reserves.

A successful round of sales could curb Chinese appetite for imports, pressuring international prices and hitting top exporters India and the United States, already smarting from dropping shipments.

The China National Cotton Reserves Corporation said in a statement late on Tuesday that it sold nearly 80 percent of the raw cotton on offer in the auction. That was over double the rate in the last round of sales.

“The take-up rate should be much higher in this round of auctions after Beijing cut the base price,” said Liu Shijun, a cotton analyst at brokerage Jingyi Futures.

“U.S. cotton prices are also quite high at the moment so Chinese textile mills will prefer domestic supplies.”

China sold 40,119 tonnes of the 50,179 tonnes of cotton offered in its daily auction on Tuesday, according to the state stockpiler.

Cotton markets around the world are watching closely as China unwinds a stockpiling scheme under which it has amassed more than 10 million tonnes of the fibre - around 60 percent of global cotton inventories.

The world’s top cotton buyer is switching away from supporting farmers through stockpiling to a subsidy-based programme.

Mills had shunned the last round of auctions, from November to March, citing high prices and poor quality. They bought only 33.4 percent, or 717,740 tonnes, of the total offered during the period.

To draw more buyers to the latest round of sales the stockpiler has slashed the minimum bidding price and is offering better quality reserves.

It will also award 1 tonne of import quotas for each 4 tonnes of cotton purchased from state reserves.

The country’s cotton imports in the first two months of 2014 fell 36 percent from a year ago to 538,600 tonnes due to a strict quota system on shipments and high tariffs.

The stockpiler has not said how long this round of auctions will last. (Reporting by Fayen Wong and Niu Shuping; Editing by Joseph Radford)

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