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Cotton futures in china surge as state purchases reduce supplies

Cotton futures in china surge as state purchases reduce supplies Source: www.bloomberg.com
Date: 30-01-2013
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Cotton futures traded in China’s Zhengzhou climbed the most in a year after government purchases reduced the supply in the local market.

Cotton for May delivery advanced 2.6 percent to 20,385 yuan ($3,273) a metric ton on the Zhengzhou Futures Exchange, the biggest gain at close since Feb. 1, 2012. The most-active contract is headed for a 7.6 percent gain this month, the most in two years.

The Chinese government bought record quantities of cotton in the last two years to protect domestic farmers, according to the China Cotton Association. The country stockpiled 5.83 million tons from the current harvest, about 85 percent of the total output, as of Jan. 22, the group said. Purchases in 2011 were 3.12 million tons, the government said.

“The government purchases have led to a bizarre shortage with about 90 percent of local cotton that meets the standards of deliverable stocks to Zhengzhou exchange ending up in government warehouses,” Du Ying, an analyst at Wanda Futures Co., said by phone from Urumqi today.

Cotton output this year may reach 7.41 million tons, up 1.8 percent from a year earlier, the association said today.

“Don’t mistake the shortage of the deliverable stocks as a real shortage in the spot market,” Wanda’s Du said. “Apart from those that can be delivered to the exchange warehouses, the market is awash with all kinds of local and imported cotton and the demand from textile industry remains anemic.”
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