The last few months have been a rollercoaster for cotton prices, and it doesn’t look like that will change any time soon. In August, prices almost reached a high of about 94 cents/lb, but at press time, prices have dropped about 20% from that peak. Within the next few days, they are poised to move again, as soon as China’s national reserve intentions become clear.
Traders believe that China is about to begin selling fiber from its enormous reserve, believed to be in excess of 10 million tons. That’s more than half of the stocks in the world, and if that fiber starts to flood the domestic Chinese market, what little import activity there has been lately will slow even more. Sources believe the stock liquidation will start late this week or early next week, although no one is exactly when, or how much cotton will be made available to spinners.
Prices are expected to be somewhere in the mid-$1.30s, and while the fiber is expected to sell quickly, that doesn’t mean spinners are happy about it. If, as expected, the cotton released by the reserve is from the 2011 crop, there will be concerns about its quality after several years of storage in a warehouse.
Nonetheless, whether they’re happy about it or not, demand from textile companies in China is expected to be strong once the fiber is made available. Very few of them have much cotton in storage, and without import quotas to bolster their supplies via the international market, they will have little choice but to buy whatever fiber the reserve makes available.