China Buzz

Import prices surged higher again following a strong U.S. equity and commodity complex. U.S. advanced 0.75-1.25 cent. West African surged 1 cent and Central Asian styles rose 0.75 cent. U.S. cotton continued to enjoy steady demand these days. News reports said ASCA has reconciled with AQSIQ on the issue of import registration. This will serve to help cotton import in the future. World cotton price is likely to move further higher without additional negative economic news.

ZCE cotton futures continued to rebound with shrinking volume that began this week. Despite this, further advance remain difficult considering the price difference between markets. The ICE/ZCE and CNCE/ZCE spread is expanding. USDA forecast was a confirmation of lower cotton consumption and implies further cuts in the months to come. At the same time, China’s cotton import remain slow and the speculative funds remain on sidelines. As of March 12, cumulative Xinjiang reserve procurement totaled 1.34 mil tons. Assuming an output of 2.7 mil tons, the current procurement is around 50% of the expected production. The other half must be sold via normal marketing channels. However, rumors arose again regarding additional purchase of 2009 crop, with a preference of Xinjiang cotton. This may has some effect on the market. Cumulative HVI classing now totaled 3.99 mil tons. When current reserve purchase finishes, there’ll be no more than 1.27 mil tons of HVI classified cotton. For longer term, cotton planting and demand changes could be a factor. But in short term, the firm physical price may keep ZCE price relatively strong. However, potential government policy may alter the supply situation and direct the price movement.

Declining resource is making seed cotton procurement more difficult and resulted in a steadily higher procurement cost. Cotton enterprises are showing less enthusiasm. In physical market, while cotton price stay firm, turnover has gradually declined and appear flat at the moment. Resources indicated that mills purchase is declining and a growing hesitation is noted due to 1) less quality cotton and 2) potential lower price after reserve procurement. This assumption allowed mills to purchase hand-to-mouth. Despite this, CNCotton A and CNCotton B continued to press higher on March 13.