Cotton futures bounced from five-year lows, but struggled to regain the psychologically-important 60 cents-a-pound mark, amid ideas that falling prices may have prompted mills to delay purchases.
Cotton for December, which in the last session closed at the weakest for a spot contract since 2009, stood 0.5% to 60.03 cents a pound in midday deals in New York.
But the better-traded March contract peaked earlier at 59.58 cents a pound before easing a little to stand at 59.43 cents a pound, a gain of 1.2%, at risk of failing to regain a much-watched price point, which for months had appeared a floor against further price falls.
“The apparent stability at 60 cents a pound or so is now under threat,” said Tobin Gorey at Commonwealth Bank of Australia.
‘Plentiful supply, subdued demand’
Indeed, Commerzbank flagged factors which could keep prices under pressure, highlighting the US Department of Agriculture upgrade this week to estimates for US, and world, cotton inventories at the close of 2014-15.
“The main reason for the price slide is plentiful supply coupled with subdued demand,” the bank said.
“Cotton manufacturers are currently holding back before making any purchases because they expect prices to fall even further.”
And while website Cncotton.com today forecast a cotton harvest of 6.51m tonnes, down some 7% year on year, “this no longer comes as any surprise”, coming in only just short of the USDA forecast.
“What is much more important is the fact that the decline in Chinese production next year will probably be less pronounced than initially thought,” Commerzbank said, flagging plans by Beijing to expand its revised subsidy programme next year from Xingjiang, the top growing province where it has been piloted this season.
China ditched a regime of guaranteed prices for growers after it, thanks to offering generous values, prompted a jump in stockpiles, with the country’s mills preferring to import from the international market at cheaper cost.
Indeed, Chinese inventories will close 2014-15 at 62.2m bales – 58% of the world total, according to the USDA – a factor which has been a major depressant for prices, with investors fearing a selldown.
Improved fundamentals ahead?
However, veteran soft commodities analyst Judith Ganes-Chase took a more upbeat view of cotton price prospects, noting that values – while often seeing seasonal lows at this time of year, during the US harvest – could yet find support from supply and demand dynamics.
“Current prices are low enough to keep mill interest sustained, and discourage plantings next spring,” she said.
As for China, while the country has underlined its plans to reform its subsidy regime, “they never said they would sell off large volumes of cotton and release the mountain of stocks they accumulated”.
The inventories were, indeed, largely bought at prices more than twice current rates.
‘Holding up relatively well’
“It seems that China is going to work [its stocks] off methodically without disruption to the market as China production falls and mill interest picks up,” Ms Ganes-Chase, at J Ganes Consulting, said.
The expected production shortfall next year will be resolved through domestic supplies, and imports of cotton or yarn, “with the latter the more likely”, given that China has already pledged to keep imports of the fibre itself at the minimum level mandated by the World Trade Organization.
And while US cotton exports were “supposed to plummet” this season, given dynamics in China, historically the top importer, “the export sales data is holding up relatively well”.
Data on Friday showed the US sold a net 158,300 running bales of cotton last week for export, taking total commitments – sales and actual shipments combined – above 6.0m running bales, up 12.9% year on year.