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Mills seem to struggle with recessionary economic environment
18 Aug '08
5 min read
However, as we have pointed out at the beginning, speculative selling has turned much quieter, while trade buying seems to pick up considerably below 69/70 cents, mainly because physical activity is increasing, be it due to new mill buying or from fixations of existing contracts. The latest on-call report showed that nearly 5'000 contracts were fixed last week, but there are still some 58'000 contracts outstanding that should provide decent support from here on down.
What we need to bear in mind is that the trade as a whole will continue to be a net buyer of futures and options in the foreseeable future, because merchants will continue to sell some 200'000 - 300'000 bales of US cotton for export week after week and mills will continue to fix some of their outstanding commitments on dips.
Both of these activities will translate into net buying of futures by the trade. With prices at current low levels we don't expect much in terms of forward contracting of US new crop, which means that merchants won't have any need sell futures at this juncture.
Even though the technical picture looks weak right now, the fact that the trade is a net buyer of futures and speculators are less aggressive in their selling should provide the market with decent support from here on down. At the same time it seems that the market has great difficulty in getting any traction to the upside, because there is still plenty of US cotton for sale, at a time when mills seem to struggle with a recessionary economic environment.
Therefore, until the current inventory has been worked down further over the coming months, the market will find it hard to escape the current doldrums. We therefore see a continuation of this trading range over the coming weeks, but we still believe that the market will eventually transition into a more bullish scenario during the course of the season.
What we need to bear in mind is that the trade as a whole will continue to be a net buyer of futures and options in the foreseeable future, because merchants will continue to sell some 200'000 - 300'000 bales of US cotton for export week after week and mills will continue to fix some of their outstanding commitments on dips.
Both of these activities will translate into net buying of futures by the trade. With prices at current low levels we don't expect much in terms of forward contracting of US new crop, which means that merchants won't have any need sell futures at this juncture.
Even though the technical picture looks weak right now, the fact that the trade is a net buyer of futures and speculators are less aggressive in their selling should provide the market with decent support from here on down. At the same time it seems that the market has great difficulty in getting any traction to the upside, because there is still plenty of US cotton for sale, at a time when mills seem to struggle with a recessionary economic environment.
Therefore, until the current inventory has been worked down further over the coming months, the market will find it hard to escape the current doldrums. We therefore see a continuation of this trading range over the coming weeks, but we still believe that the market will eventually transition into a more bullish scenario during the course of the season.
Plexus Cotton Limited
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