Traders to view export sales for demand gauge. Negative impact expected by ICAC from Chinese cotton policy and polyester competition.
An early rally lost momentum shy of TuesdayΆs high as cotton futures retreated to a five-session low and closed in the red Wednesday for the third day in a row.
Spot May closed off 56 points to 91.51 cents, in the lower quarter of its 177-point range from up 91 points at 92.98 to down 86 points at 91.21 cents. July settled down 53 points to 91.97 cents and December eased off 16 points to 79.71 cents.
Traders will view the U.S. weekly export sales report on Thursday for any signs that the surge to new two-year highs last week dampened demand. The USDA report is to be released at 7:30 a.m. CDT.
Volume slowed to an estimated 25,400 lots from 28,008 lots the previous session when spreads comprised 15,773 lots or 56%, EFP 241 lots and EFS 156 lots. Options volume totaled 2,670 calls and 6,404 puts.
Uncertainty on how China will handle its large reserves next season and a significant gap between polyester and cotton prices doesnΆt bode well for cotton consumption in China and, by extension, countries that have heavily exported cotton to China in recent seasons.
So says the International Cotton Advisory Committee, noting that the Cotlook A Index of world cotton values in 2013-14 has averaged 90 cents a pound and polyester in China 73 cents. In March, however, polyester prices in China fell below 70 cents to about 66 cents, while the A Index averaged about 97 cents.
Given the substantial cost difference, cottonΆs share of the market is expected to continue to decline this season. However, converting ICACΆs estimates to 480-pound statistical bales from metric tons, consumption in absolute terms is expected to rise by 1% to 108.16 million this season and by 3% to 111.75 million in 2014-15.
The increased offtake is attributed to recovery of the world economy and population growth. Although ICAC expects mill use in China to decline to 36.28 million bales in 2013-14 from 38.12 million in 2012-13, China still will be the worldΆs largest cotton consumer.
China has announced it will end its stockpiling program and test a target price policy in Xinjiang, the main cotton area. The government has bought roughly 28.94 million bales this season, 42% of which came from Xinjiang, and sold about 4.27 million bales, ICAC estimates.
Sales are expected to increase, however, after the government lowered the floor price and will allow spinners to purchase one bale of imported cotton in the reserve for every three bales they buy of Xinjiang cotton.
ItΆs also understood that import quota allocations are available at a one-to-four ratio for certain qualifying mills and that a separate so-called processing trade quota is still possible for export-oriented mills.
The ICAC secretariat says 2013-14 sales are unlikely to exceed 16.99 million bales, the volume of 2012-13 sales. Cotton held in the reserve is estimated at 58.79 million bales, and ICAC projects ChinaΆs total ending stocks — including private holdings — at 52.82 million bales, 58% of the world carryout.
World ending stocks are forecast by ICAC to grow 12% this season to 92.04 million bales and expand further to 96.64 million bales in 2014-15, up from 91.54 million and 95.72 million bales, respectively, foreseen a month ago.
