China cotton supplies seen tightening, extending price rally

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BEIJING: China’s cotton futures extended a rally on Thursday as speculative buying pushed prices to the highest in more than a year in anticipation of tight supplies after Beijing delayed sales from its state cotton reserves, traders said.

The most-active September 2016 contract at the Zhengzhou Commodity Exchange was traded up by more than 6 percent to an intra-day high of 13,425 yuan ($2,073.23) per tonne, the highest since September 2014.

The price has jumped about a quarter so far this month, outpacing gains in the U.S. market.

“Funds are pushing up the prices, there is too much liquidity in the market,” said Zhang Hongzhou with Galaxy Futures.

Delayed sales by Beijing of its massive state cotton reserves have cut the supply available to textile mills, which are having to buy from merchants that are holding on to their stock in anticipation of even higher prices, said Zhang.

Beijing said on April 15 it would start its annual state cotton sales from early May, about a month later than the market had expected..

The rally in cotton has come despite the country’s top planning commission saying this week it may increase sales from the state reserves to more than 2 million tonnes this year after the recent price spike.

The National Development and Reform Commission (NDRC) also said it would continue to increase the sales if there is a big supply gap before September’s harvest, according to a report posted on an industry website (www.cncotton.com).

Expectations of a domestic supply gap larger than 2 million tonnes this year – after Beijing has capped imports and farmers work to reduce planting acreage – have triggered funds buying, said Wang Guangqian with Dong Wu Futures.

China’s cotton imports in March fell 54.7 percent on year to 57,900 tonnes, according to official customs data published on Thursday.

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