How about spot cotton market amid epidemic?

How about spot cotton market amid epidemic?

ICE May cotton contract has been constantly decreasing last week, and on Feb 27, the contract hit the maximum fall to 62.47cent/lb. The market is in a panic again after the early worries over the outbreak of novel coronavirus in China. With the panic mood, Zhengzhou May cotton contract also reached the down limit on Feb 28 to 12,180yuan/mt. From Feb 24 to Mar 2, on-call cotton sales from mills were relatively active due to sharp decrease of cotton futures, to replenish feedstock.

1. Spot cotton sales
Trading volumes of spot cotton increased significantly last week due to sharp fall of prices. Amid the pessimistic market sentiment, Zhengzhou May cotton contract has been constantly decreasing. Most mills revised lower the buying indication. On Feb 28, buying indication was adjusted to 12,180-12,350yuan/mt. Trading volumes increased obviously.


2. Cotton inventory in spinning mills
Most mills replenished feedstock last week when cotton futures market fell down, and the purchase willingness weakened this week. According to CCFGroup, cotton inventory in medium and large mills is at 40-60 days, and that in medium mills is 25-35 days. The cotton inventory is relatively low compared to previous years. Besides, affected by the novel coronavirus, downstream demand weakens somewhat, and the consumption speed of cotton is slow. Mills mainly consider two factors currently, to slow down the purchase this week. One is that most mills have replenished feedstock last week. Another is that some mills expect that ZCE cotton futures may rebound in Mar, and they consider to purchase cotton at low level.


3. Status quo of traders and mills
Traders: most traders revise up the basis of on-call cotton due to lower ZCE cotton futures, while some traders with high basis move lower the basis to speed up the sales. Under the continual fall of ZCE cotton futures, most traders have revised up the basis by 50-150yuan/mt last week. The mainstream offers of 2019/20 grade-3128 cotton are pegged at 500-800yuan/mt premium to ZCE May contract. From the angle of inventory at traders’ hand, cotton inventory at large traders’ hand is mostly at 200-250kt, that at medium-sized traders at 10-20kt, that at small traders at 2,000-4000 tons. On-call cotton sales were relatively good last week, easing the anxious mindset, but some small traders are still worrying about the downstream demand, and move lower the basis by 100yuan/mt this week to speed up the sales.

Mills: mills are in slow recovery, and yarn prices keep flat. New orders are limited, as buyers stand on the sidelines mostly. Resumption of mills is relatively good, but production has not recovered effectively. Most mills purchase cotton on need-to-basis, and on concern about the limited new orders, with relatively ample cotton inventory, most mills remain cautious.

4. Conclusion
Spot cotton sales increase last week with lower prices, and mills mainly purchase for rigid demand. This week, mills’ purchase willingness weakens. Most traders have revised up the basis last week, while some traders with high basis revise lower the basis this week to promote sales. In general, mills still worry about the new orders, and show weak buying interests on cotton this week. Cotton prices may be weak.



Source: ccfgroup.com
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