Cotton demand on the wane from China as futures market moves

30 Oct '06

3 min read

Cotton futures completed their second week of grunting, grinding and inching higher, closing higher in nine of the past twelve sessions.

With such a string of up days one is tempted to feel the market has found it bottom and turned the corner to look for higher ground. Yet, December futures are only some 250 points off their week old bottom of 48.07 cents.

The fundamentals, supply and demand, do not appear to be the source of this string of higher closes. In fact, they actually appear weaker, if anything.

However, the technical picture of the market did improve as December was able to close above 50.50 on Thursday.

Such a close opens the way for trading to just above 52 cents, but the lack of physical trade in the U.S. and around the globe does not suggest mills are looking for cotton, especially any engine driving fresh demand from China.

With the lack of buying by China, any rally will stumble and attempt to regroup back below the 49 cent level. Thus, the market will limp into the New Year.

U.S. textile mills used cotton at an annualized rate of 5.3 million bales during September. This was down 700,000 bales from the September 2005 level.

August usage was revised to 5.15 million bales, some 1.1 million bales below the August 2005 usage. The USDA estimate of domestic usage for 2006-07 is 5.3 million bales

The lack of Chinese buying has highlighted the struggle facing U.S. export sales. U.S. exports have been expected to approach 16.5 million bales. To reach the USDA export target weekly sales much average slightly over 300,000 bales for the remainder of the marketing year.

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