China cotton reserves to go on sale

A picture of a cotton picker in China
Image caption China's sale of its 10m tonnes of reserves could meet stiff competition from India

China, which has about half the world's cotton, will start sales from its reserves on Thursday, the China National Cotton Exchange has said.

The aim is to increase the supply to China's domestic textile market.

But the sale, from its 10 million tonnes of stockpiled cotton, is likely to meet stiff competition from cheap Indian imports, traders have said.

It is expected to be priced at 18,000 yuan (£1,810; $2,950) a tonne, about 70% more than current world prices.

Traders said India's new crop quality may be slightly better than China's 2011 crop, from which the batch to be sold will come.

India's exporters may also offer better prices, they said.

Chinese textile mills are currently struggling with tight credit and low yarn prices. But reserve sales may push yarn prices down further.

In 2012, buyers were given a quota of one tonne of imported cotton for every three tonnes of state cotton.

Ron Lawson, partner at commodity investment firm Logic Advisors, said: "The three-for-one system put a lot of demand into the world market, and now they're restricting the amount of cotton coming into China."

He noted traders' expectations that China might be planning a new import system.

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