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New York cotton market experiences dull trading
13
Dec '11
Plexus Cotton Limited reports that New York futures moved sideways in very dull trading this week, as March added 75 points to close at 92.05 cents.

It was more of the same this week, as general price weakness emanating from plentiful international offers continued to be offset by aggressive Chinese Reserve buying. Through its domestic auction program the Reserve has added another 1.1 million statistical bales to its stockpile this week, which means that it has already accumulated around 6.1 million bales since the middle of October, which equates to roughly 18 percent of China's crop this season.

The maximum daily auction target is currently at 577'000 statistical bales and the fact that less cotton was taken up this week, combined with an ever so slight rise in domestic prices, seems to indicate that the support mechanism is working.

Against this backdrop of Chinese support, which has kept the CC-index at a relatively elevated level of around 136 cents when compared to the current A-index of 98.70 cents, mills around the globe have been getting some breathing room lately and are now in many cases able to turn a profit against current replacement cost.

However, a lot of mills are still struggling to digest the many high price contracts they have engaged in earlier this year and it is going to take a while until this overhang of expensive cotton has finally been worked through the system.

Recent US export sales reports have been reflecting this tug-of-war in the market between Chinese support and struggling markets elsewhere. The latest report, which was released this morning, showed once again a net gain for China in the amount of 35'400 running bales, while the rest of the world went the other way and cancelled a combined 58'400 running bales, resulting in a net reduction of 23'000 running bales of Upland and Pima cotton.

The only positive in the report was the increased pace of shipments, which amounted to 244'800 running bales. Nevertheless, total exports to date still amount ot only 2.1 million statistical bales, leaving a large unshipped balance of around 8.4 million bales, not counting 1.3 million bales in optional sales.

This large amount of outstanding commitments seems to worry the market, because of potential cancellations. However, when we look at who has booked these 8.4 million in outstanding sales, the majority belongs to China (4.8 million bales), followed by Turkey (0.7 million bales) and Mexico (0.4 million bales).

These three markets account for about 70 percent of all unshipped sales and they pose a relatively limited default risk in our opinion. Beyond that we have 9 markets that are owed between 0.1 and 0.35 million bales each, which is not a large amount in terms or their respective annual mill use and a lot less than what they had on their books a year ago.

In other words, while there probably will be some additional cancellations in the weeksahead, we don't think that they are going to add up to a significant amount and that net sales will continue to grow overall.

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