China Plans Sale From Cotton Stockpile; News Comes as Storm Hits Texas, a Major Grower

China Plans Sale From Cotton Stockpile

News Comes as Storm Hits Texas, a Major Grower

LESLIE JOSEPHS

Updated Nov. 26, 2013 3:59 p.m. ET

NEW YORK—The Chinese government is planning to sell part of its roughly 10 million-ton stockpile of cotton this week, an event long anticipated by traders of the fiber. But while the prospect of a sale from such a large holding would usually push down international cotton prices, concern over the quality and price of the fiber China is offering is expected to mute the effect somewhat. News of the sale came as some traders worried over a late-autumn storm that hit growing regions in the southern part of the U.S., the world’s biggest cotton exporter.The government plans to sell the cotton via auction starting on Thursday with a minimum price of 18,000 yuan a ton, equal to about $1.34 a pound, according to a notice posted on the website of the China National Cotton Information Center, a government-run cotton-industry body.

Previous cotton sales have had only limited success. The China National Cotton Reserves Corp. held daily auctions from January through July this year, but mills bought just 25% of the cotton offered because of the high prices the corporation wanted, traders said.

Thursday’s auction price is about 70% higher than U.S. cotton futures, a market benchmark. Cotton for delivery in March on the ICE Futures U.S. exchange ended at a more-than-one-month high of 79.14 cents a pound.

In addition, China National Cotton Reserves will first offer cotton from the 2011 crop, raising concerns about the quality. Older cotton can grow brittle in storage, making it more difficult to spin into yarn and dye.

Neither China National Cotton Reserves nor the China National Cotton Information Center was immediately available for comment.

“I don’t think [the auction is] a game changer” because of the quality concerns, said Gary Raines, an economist at brokerage INTL FCStone. “You could have a Ferrari in the driveway [and] you can come back in 15 years to drive it, but don’t expect it to be the same Ferrari.”

Traders and analysts said they had been expecting China to release some of its reserves before the end of the year, a prospect that sent cotton prices to a more-than-nine-month low in early November. China’s reserves total about 10.3 million metric tons, according to the International Cotton Advisory Committee, a Washington-based group that advises cotton-growing countries. The reserve is equal to about 40% of global production last year.

Cotton traders and analysts largely shrugged off China’s announcement.

“The focus is on the U.S. weather,” said Kona Haque, head of agricultural commodities research at Macquarie BankMQG.AU -0.11%

A large storm passed through the eastern U.S. on Tuesday after dumping snow on growing areas in Texas, the country’s top cotton-producing state.

“There are some concerns how much quality will be impacted from the ongoing wet weather,” said Sharon Johnson, a senior cotton specialist at KCG Futures. “Yields could suffer as well, depending on the extent and length of adverse conditions.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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