Cotton Prices Hit 7-Month High After Buyers Reject Chinese Reserve

By Jim.Robinson|January 23, 2013

Cotton futures indicate we might be entering a bullish market, possibly due to the fact that the Chinese government’s auction of its cotton stocks was received by tepid demand.

Buyers in the country apparently showed little interest due to poor fiber quality and high prices, a source of relief for many international investors. News on this topic indicates that the demand for world cotton may stay strong within Chinese borders as mills are predicted to continue to import despite high fees and a heavy tax burden imposed by the government.

According to the Wall Street Journal (WSJ), less than 70% of the cotton up for bidding sold within the first two days, opening the market up for speculation that more cotton will need to be imported from the U.S. market to meet demand. The auction is set to continue daily through March 31.

It is a possibility, WSJ reports, that the government will coax bids by linking purchases to the opportunity to buy more low- or no-duty cotton from overseas. For example, mills might be allowed to import one ton of cotton for every three tons of Chinese reserve cotton that they buy.