Sales from China’s State Reserve have remained very strong, despite rising prices. As of July 8 sales totaled 1.184 million tons, with over 97 percent of the cotton offered finding buyers. All of the cotton offered since June 28 has been sold.
Nearly all of the cotton being offered in recent weeks has been domestic. Early commentary on reserve sales suggested strong purchases in early May could have been driven by the large imported volumes on offer, but continuing high sales with only domestic offerings suggest demand is more broadly-based than previously considered.
The base sale price has risen steadily and has reached just under 90 cents per pound. Even at this higher level, the base price remains less than the TRQ duty and VAT-inclusive import price of many available West African, Australian and U.S. growths, suggesting there is room for prices to move even higher if demand persists.
To date, even with reserve sale prices well above initial levels and above what many observers expected prior to auctions beginning, import demand has not shown any appreciable move upwards. Thus, while strong auction sales speak to significant domestic demand and tight pre-auction stocks, there is not yet evidence of demand sufficient to markedly increase imports.
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Volumes offered and resulting sales remain at levels consistent with the officially-announced 2-million ton sales target being met just before the end of August, the announced cut-off for reserve sales.
With these strong continuing auction sales and other market data indicating more mill use than previously thought, USDA has revised China’s consumption forecast up substantially.