China Announces to Dump 500K MT of Reserved Cotton

National Food and Strategic Reserves Administration and Ministry of Finance jointly announced just now. In order to optimize the structure of reserve cotton, ensure the quality and enhance the regulation and control ability of central government. It’s decided that some reserve cotton will be rotated in 2020. The relevant matters are hereby announced as follows:

Reserve dump:

Time: reserve auction will be carried out on each business day from July 1, 2020 to September 30, 2020.

-Quantity: The total amount is about 500,000 tons, with about 8,000 tons offered on each business day.

  • Price. The starting price will be determined dynamically according to the market. It is calculated and determined by domestic cotton spot price indexes and international spot index (cotlook A) according to the weight of 50% respectively, and will be adjusted once a week. During the period of reserve auction, when the domestic market cotton spot price index is lower than 11,500 yuan / ton, auction will be suspended from the next business day; when the domestic market cotton spot price index exceeds 11,500 yuan / ton for three consecutive business days, auction will be restarted on the next business day.
  • Platform. Reserve cotton will be offered and bid through CNCE e-trading platform. sold in the national open market.
  • Classing. The quality and weight of the reserved cotton will be inspected by China Fiber Inspection Bureau(CFIB).

Calculation Formula of Reserve Dump:

-Weekly starting price – domestic cotton price indexes of last week X 50% + international spot cotton price index X 50%

  • Domestic cotton price indexes = (CCI + CN cotton B) ÷ 2
  • International cotton price index = cotlook A (usd/ton) × exchange rate × (1+ import cotton tariff 1%)× (1+ VAT 9%)
    1.  (exchange rate = the rate on the third Wednesday of last month)  
  • CCA (China Cotton Association Q’s quality P&D will be used for auction.

Reserve Buying:

-Related department shall select another time to arrange the reserve buying, according tot he actual reserve selling and the supply/demand situation of the cotton market. The specific details will be announced separately as soon as possible.

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