Thursday, May 21, 2009
China Commodities Update: FH May
To download China Commodities Update for FH May, please click http://www.globecot.com/20090521china.pdf
Friday, May 15, 2009
China Edges Closer to Reserve Announcement
It's been a whirlwind of rumors on the quota/reserve release saga the last couple of weeks, the greater part of which I observed from the hospital due to the birth of my second daughter. Hence, the lack of blags the past week or so. The latest comments we have heard have the government releasing about 800,000 tons from the state reserves--with a mixture of approximately 500k from the old crop and 300k from the 2008/09 crop---the very one they just spent time, energy and renminbi buying earlier this and last year. We are told there will be foreign growths included as well. The set price has not be settled yet, but we hearng ranges of 12,000 to 13,000 yuan/ton.
Last week, our joint venture partner in China released commercial stocks estimate of appx. 1.1 million tons, which, according to them, was less than two months of consumption. Therefore, the current release is realistically one or very close to one month's consumption. This begs the question what's next on the horizon. As we see it, the move is temporary and will certainly help. But, the problem of a tight supply remains. Further, the absence of high quality grades, though certainly helped by the inclusion of the 2008/09 crop, can not be completely solved by its release. This brings us back to the question of to include or not include quota. I still believe quota will be included--just at a later date. The government will monitor the spot prices around the country, best exhibited by the CN Cotton A/B indices which are currently quoted at 13,173 and 12,896 yuan/ton, respectively. Should the market decide the release was inadequate one would see sharp rises in both indices and in my opinion a quicker decision by the government on what to do next.
Last week, our joint venture partner in China released commercial stocks estimate of appx. 1.1 million tons, which, according to them, was less than two months of consumption. Therefore, the current release is realistically one or very close to one month's consumption. This begs the question what's next on the horizon. As we see it, the move is temporary and will certainly help. But, the problem of a tight supply remains. Further, the absence of high quality grades, though certainly helped by the inclusion of the 2008/09 crop, can not be completely solved by its release. This brings us back to the question of to include or not include quota. I still believe quota will be included--just at a later date. The government will monitor the spot prices around the country, best exhibited by the CN Cotton A/B indices which are currently quoted at 13,173 and 12,896 yuan/ton, respectively. Should the market decide the release was inadequate one would see sharp rises in both indices and in my opinion a quicker decision by the government on what to do next.
Thursday, May 7, 2009
China Commodities Update--LH April
To download China Commodities Update for LH April, please click http://globecot.com/20090506.pdf.
Tuesday, May 5, 2009
China LH April Cotton Update: Part 1
Last half of April was characterized by the constant rumors of whether or not the government would either issue additional import quota or allow the state reserves to release cotton stocks on to the market. As of writing this update, no decision had been made. The most recent rumor has the government deciding to only issue quota later in the year and at near term release stocks from the 2004/05 crop year. Honestly, one could make the case for either way, depending on the viewpoint. However, as previously stated, at Globecot we think the better and more practical choice would be to issue additional import quota at a fixed rate—maybe not as low as one percent but probably about 3 to 4 percent—and conserve the reserve stocks until absolutely necessary.
The current reserve purchase scheme has driven up domestic prices with the CNCotton B Index now standing at 12,928 yuan/ton, up more than 1400 yuan (the equivalent of 9.00 cents/pound) versus a month ago. In other parts of the country, mills are paying the equivalent of 13,000 yuan/ton and higher delivered. Using the Globecot International Index price of 62.04 cents/pound CNF China ports and assuming a mill has some 1% quota in hand, the yuan equivalent price delivered to an inland textile mill is now 11,050/ton. Even using the sliding tax scale, the delivered price to an inland mill equates to 12,705 yuan/ton. Compared to the CNCotton B index, each delivered price is well below the average market price and most mills would prefer additional quota rather than playing the “quality lottery” with a release of state reserves. Despite the prevalent rumors a more likely option for the government and one we think they might eventually choose is a mixture of quota and state reserves release.
The current reserve purchase scheme has driven up domestic prices with the CNCotton B Index now standing at 12,928 yuan/ton, up more than 1400 yuan (the equivalent of 9.00 cents/pound) versus a month ago. In other parts of the country, mills are paying the equivalent of 13,000 yuan/ton and higher delivered. Using the Globecot International Index price of 62.04 cents/pound CNF China ports and assuming a mill has some 1% quota in hand, the yuan equivalent price delivered to an inland textile mill is now 11,050/ton. Even using the sliding tax scale, the delivered price to an inland mill equates to 12,705 yuan/ton. Compared to the CNCotton B index, each delivered price is well below the average market price and most mills would prefer additional quota rather than playing the “quality lottery” with a release of state reserves. Despite the prevalent rumors a more likely option for the government and one we think they might eventually choose is a mixture of quota and state reserves release.
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