In the year 2012, global economy was sluggish, debt crisis of EU and US spread further, domestic economy slowed down, global textile and apparel consumption shrank, cotton demand continued to be weak. According to Customs, the total value of first eleven months of 2012 export of textile and apparel was 23.08 billion USD, 2.1% up Y/Y; however the decrease was the actual case when considering the export price increase. During this year, more textile companies faced closure or production contraction due to largely reduced margins caused by shrink export, cost increase, RMB exchange rates appreciation, the global trade barrier and enlarging price gaps domestic and international; therefore the cotton purchase from mills was very cautious. In 2012 cotton market was weak and price decreased, however, the temporary reserve supported the market. CC Index328 has annual average price of 18,910 Yuan per ton, 20% less Y/Y, and the price variation was 1,000 Yuan.

By the end of March, reserve purchase of 2011/12 season completed with 3.13 million ton, more than 40% of the seasonal output. By the end of February, the reserve purchase plan of 2012/13 season was announced by departments related, increased purchase price by 600 Yuan to 20,400 Yuan per ton, and extended quality to grade five to certain areas stricken by natural disaster.

By the end of reserve purchase, domestic cotton price decreased all the way to the lowest of 18,000 Yuan. During the new season, cotton price climbed steadily to 19,000 Yuan per ton by the end of the year after reserve started. Domestic lint spot trade was sluggish, with market price lower than reserve price, leaving reserve as the main trade channel. The selling and processing of new arrivals this year was much faster than last year due to active reserve trade. According to CCA survey, the seed cotton selling accomplished by 89%, 13% more than the corresponding time of last year. The average price for standard seed cotton was 8.5 Yuan per kilo nationally, slightly higher than last year. At the same time, nationally cotton mechanically tested under reformed system approached 6 million ton by 31st December, 2012.

In 2012, temporary reserve transaction started early and fast with large volume. By the end of the year, the running total has been 5,176,920 ton, comprising 2,325,120 ton in Xinjiang and 1,575,150 ton in Inland, and 1,276,650 ton by key enterprises. Since 19th November, the grade five cotton was included by reserve purchase in five exclusive areas stricken by natural disasters, to solve selling difficulty, then encouraging seed cotton price to increase slightly in inland cotton areas.

For most lint was collected by reserve, leaving so limited high grade cotton in the market, which could not register warehouse receipts in futures market, and ZCE CF301 cotton contract increased to 20,945 Yuan per ton in the highest position in December, 545 Yuan more than reserve purchase price of the season. Domestic spot price dipped to the lowest in July, then edged upward continually supported by reserve. By the end of 2012, CC Index328 settled at 19,201 Yuan per ton, 1,045 Yuan higher than the lowest point, 21 Yuan more than that of end of 2011; during the first half year of 2012, both domestic and international cotton price declined, while the decrease domestically was much less than international, enlarging the price gap between import and domestic cotton from 2,000 Yuan to 5,000 Yuan, and the total import of first eleven months of 2012 calendar year was 4.605 million ton, 78.9% more than the corresponding time of last year.

In order to protect cotton growers and textiles needs, one million ton of reserve cotton was projected to release to textile companies at bottom price of 18,500 Yuan per ton starting from 3rd September, 2012, as result, 490,000 ton of them was sold at auctions.

Reserve policy stabilized cotton market and production, slowed down cotton acreage reduction. According to CCA, the national cotton acreage was 73.15 million mu in 2012 year, 8.8% less than last year, with reduction in Yellow River and Yangtze river regions, while increase in Xinjiang. Since sowing, weather nationwide was positive except some natural stricken areas, the disease and insect occurrence was light, and unit output increased in average. According to CCA statistics, the annual yield nationwide was 6,955,000 ton, 4.4% less than last season.