China will sell 300,000 tons of state reserve cotton on the national cotton trading market on July 16 to keep down rising prices and increase market supply.

The China Cotton Association confirmed the news on its official website.

After one and a half years of bearishness, China’s cotton market has picked up strongly since May of this year.

Market analysts pointed out that main reason for the recent hike in cotton prices is that supply is contracting on the domestic market, accompanied by thriving consumption.

At present, sales of home-grown cotton in the 2006/07 season is drawing to a close with more than 80 per cent of products sold. Meanwhile, cotton imports plunged 55 per cent year-on-year to 924,000 tons in the first five months of this year. In addition, due to the sustained rebound of textile exports, domestic cotton consumption has been robust this year, with yarn output 7.41 million tons in the first five months, jumping 20.6 per cent.

However, an industry expert noted that the dumping of state reserve cotton is more likely to produce a psychological effect on cotton prices. As the inventory declines quickly and exports grow rapidly, international cotton prices are stronger than domestic prices, with local prices predicted to further weaken as compared to international prices.