MUMBAI (Reuters) - India on Tuesday kicked off a sale of government cotton stockpiles, putting a first tranche of 5,100 bales up for auction.
The state-run Cotton Corp of India (CCI) is being forced to sell cotton into a weak market as it struggles to store purchases of around 5 million bales made in the current crop season. It typically sells stocks in phases through electronic auctions.
The decision by India, the world's second-biggest producer of cotton, to sell the fibre in the domestic market when neighbouring China is going slow on imports could put further downward pressure on global prices, which hit a 5-1/2 year low last week.
To begin with, the CCI would auction 5,100 bales of cotton from India's southern states, said an official order on a government website. It did not say whether there was a target for total sales.
On Jan. 23, a government source told Reuters that the CCI could start selling cotton from the first week of February as they were waiting for prices to recover.
A rise in local prices gave the government agency an opportunity to cut its losses, said Pallavi Munankar, research analyst with Geofin Comtrade, a Mumbai-based brokerage.
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Spot cotton prices in India have fallen more than 9 percent to about 30,400-30,500 rupees ($495-$497) per candy of 356 kg since the beginning of the crop season that started in October. However, prices recovered 200-300 rupees on Tuesday on reduced arrivals, traders said.
($1 = 61.3950 rupees)
(Reporting by Meenakshi Sharma; Editing by Mayank Bhardwaj and Michael Urquhart)