【Everyday ICE】Why is China's large number of U.S. cotton contracts the market unresponsive?

China Cotton Network News: After some shocks, ICE futures still closed higher last week, and prices were generally stable. On October 22, ICE futures rebounded after the previous day's sharp fall, and the market turned a blind eye to the large increase in the number of U.S. cotton contracts, but focused on the lag in U.S. cotton shipments, resulting in a sharp drop in prices, which is very confusing.

At present, the global maritime crisis is still intensifying, and traders feel that if you sell something but can't ship it, what is the use? Therefore, the market now has two very different attitudes towards U.S. cotton exports. As of October 14, U.S. cotton export sales in 2021/22 completed 8.009 million bales, down from 8.46 million bales in the same period last year and 8.056 million bales in the same period in the past five years, completing 55% of the USDA forecast and averaging 57% for the same period in the past five years.

While U.S. cotton export sales were fairly strong last week, the upside has been partially absorbed in the market ahead of schedule. From the data point of view, the United States land cotton signed 391,800 bales, and China signed 272,800 bales. According to market rumors, the actual data may far exceed this level, so the subsequent data may remain at a high level, of course, these will also be within the market expectations. Some people began to compare the current Chinese import demand with the 10-year one, when ICE futures rose to more than $2 / pound, but at that time China's ending inventory was only 10 million packs, the inventory consumption ratio was 23%, and according to the USDA forecast, China's ending inventory this year was more than 36 million packs, and the inventory consumption ratio was more than 90%, so China's import demand was far less urgent than the last time.

If cotton prices want to develop healthily, the key lies in whether the rise in cotton prices can be transmitted downstream to the terminal. From the current point of view, the current price transmission has begun to occur, and in the past week, the procurement of spinning mills has been slightly active, bringing confidence to the spot market. In the week, yarn sales in the international market increased and there were transactions in the point price plate, but this transmission was not caused by the traditional imbalance between supply and demand, but by the logistics bottleneck and the short-term supply tension caused by it. Now no one knows when the market will be able to prove itself, perhaps only after the price has entered a new equilibrium.

Currently, the high of the ICE futures December contract has dropped from 112.89 cents to 111.35 cents, while the low has fallen from 106.30 cents to 105.88 cents, and if the price falls below 105.50 cents, it may indicate that 111-112 cents is an important top price.

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