According to cotlook textile mill earnings are under pressure. From January through November 2008, around 20 percent of the larger textile mills (those with an annual income above 5 million Yuan) made a loss, against 17 percent during the same period of 2007. Total profit of such mills was 104.2 billion Yuan during the first eleven months of 2008, down two percent from a year earlier.”
The longer-term supply fundamentals look positive and the market saw one week of positive demand news but the demand news turned sour again last week and the supply bullishness is a long way down the road. Dry winter weather in the southern plains has added to the positive tone. However, near-term supply is high and short-term demand factors could get worse before turning. March cotton pushed lower on the session on Friday and closed lower for the 4th session in a row. Economic news remains bearish and a lack of cotton demand news to offset a collapsing stock market helped spark long liquidation selling.
Poor housing data and weak consumer spending are bearish forces for cotton demand but the trade focus remains on potential new crop tightness in case the US and China cut-back on plantings just as the economy bottoms. Keep in mind, 74% of the US cotton goes for export so the strong dollar is not helping the demand situation. The commitments-of-traders reports, released on Friday, showed the cotton market in a slight overbought condition with speculators net long 20,710 contracts, up 6,301 contracts for the week ending January 27th.
Trend-following funds increased their net long positions by 4,740 contracts for the week to 8,493 contracts and the buying trend is a short-term positive force. Weakness in the grain markets over the weekend adds to the fears that cotton may not lose as much land to other grains as suspected.
Karachi Cotton Association
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