The cotton market saw a low of 88.95 c/lb and a high of 96.15 c/lb over the space of five days, quite an amazing week. 

The low of the week came on Monday and was relatively easy to explain as highlighted in last week’s report. The world’s largest property company Evergrande was on the brink of collapse with fears of what this might mean for the Chinese economy as a whole. However it appears that the Chinese government are willing to step in and save the indebted company which has calmed the situation. 

It is a bit more difficult explaining the high seen on Friday, when the market finished at 95.99 c/lb up 350 points in the week. Volume traded on the day was close to 60k contracts with the Dec/March spread going out to 1.42 c/lb. What are the reasons for this sudden move up: 

• Oil prices are reaching new highs making synthetic fibers more expensive. 
• Again China was a strong buyer of US cotton taking 220k bales (65%) of US cotton in the week 
• Fears that the crop in China may be smaller than expected, triggering this new round of buying. The ZCE was up strongly on Friday as a result. 
• Chinese State reserve sales have sold out every day since the beginning of the auctions, now totaling close to 600k MT sold. 
• Unfixed on call sales remain at unseen levels

The above reasoning’s certainly seem China centric but as history has taught us, when China comes to the market to buy large quantities, strong moves can be expected. 

Whilst the cotton market has been volatile, the shipping industry has remained a constant of disappointments and delays. Major retailers such as Nike and Ikea have been forced to charter vessels for their goods to guarantee that their stores remain fully stocked. You should buy your Christmas presents now if you want to receive them in time, though even now it might now be too late. 

Asides from the bullish pattern we must not forget that we are due to see some large crops entering the market imminently. The US crop continues to come along well with some talking of 19 million bales and with no tropical storms in the forecast for now. There have been reports of a lack of rain in some areas of India but overall we should see a crop of 36 million bales. Then there is the Brazil and West African cotton starting early next year….. The question is, will demand be strong enough to consume all these cottons and the answer will remain to be seen. 

The dollar is again strengthening against all currencies which combined with the stronger market will only make the spinners’ lives more difficult. From this point the on call unfixed sale position will not reduce heavily leaving speculators in the driving seat. However, $1 cotton is a psychological barrier and may not stay there for too long if it is achieved.-