It's not as if Chinese consumers weren't already spending! In October vehicle sales rose 76% from a year ago and they are up by 45.2% for the first 10 months. Other economic indicators were very strong as well in October, with industrial production up 16.1% and retail sales gaining 16.2% compared to a year earlier. But it is not just China that is seeing accelerating growth, as India's industrial production beat expectations as well in September, growing by 9.1% year-on-year. As long as we see these kinds of numbers from the two most populous economies, we shouldn't have to worry too much about cotton consumption.
Even though mills have been successful with their hand-to-mouth strategy for several years in a row, we are getting the impression that this strategy may not work as well this time around. The seasonal shortfall is real and it is being exacerbated by the quality issue. In addition to the friendly supply/demand situation in cotton we have a speculative community that believes in commodities as an asset class, with Ag products garnering particular interest. The certified stock may have contained the market for the last three or four weeks, but with December now practically out of the way, the path is once again clear for speculators to run the show for the next 10-12 weeks.
So where do we go from here? Unless we see an unexpected shift in the macro picture, we believe that cotton prices will be very well supported throughout the season and mills may want to consider securing their supplies sooner rather than later. Cotton prices will get cheaper again, but probably not this season and we wouldn't be surprised to see current crop invert above new crop as we head into spring and summer. Plantings will increase considerably next season if prices hold, but that won't help anyone who is in need of cotton now. While March may have to do some consolidating over the next week or two, we believe that speculators will eventually take this market higher and that it won't be too long before May or July trade with an eight in front of them.
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.jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "UBM China (Shanghai)")
-Ltd..jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "Thermore (Far East) Ltd.")
