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CTZ22 77.40 (-0.89)
CTH23 77.26 (-0.71)
CTK23 77.04 (-0.39)
CTN23 76.24 (-0.18)
CTZ23 74.72 (+0.29)
Zhengzhou WQF23 – 13,275 (-230)
Cotlook “A” Index – 99.80 (-1.15) – 19th October
Daily volume – 41,003
AWP – 76.28
Open interest – 237,104
Certificated stock – 880
Z22 / H23 spread – (+0.14)
Z22 / Z23 spread – (+2.68)
December Options Expiry – 11th November 2022
December 1st Notice Day – 23rd November 2022
– Those amongst us who have worked on a trading desk will be familiar with the old joke that the market has fallen because there are “more sellers than buyers”, it is perhaps a trite observation, but this is exactly what the cotton market is facing up to at present. It seems that, in recent weeks, the market has woken up to the absence of demand. Despite little “new news” we have seen the market limit down yesterday and then, today, a failed recovery saw us finish down 89 points for a close at 77.40, after making further new seasonal lows at 77.14 basis the front month Dec ’22 (below on a 15 min chart).
– Despite the eye-catching price action, it is hard to write a market letter at present that reports on anything but “more of the same”. Consumption is the main story as we have been reporting for some time. In Indonesia there have been newspaper reports of a large and well know mill making large lay offs of staff as spindles are idled. Consumption is much reduced in the country in line with most other consuming markets.
– In Vietnam we continue to hear talk of cancellations and possible defaults. To make matters worse, the central bank have widened the daily trading range for the Vietnamese Dong against the USD. Unsurprisingly, this has led to a further fall against the rampaging USD. In Vietnam, many mills have tight banking restrictions and their access to foreign currency financing is strictly controlled by their bankers. This currency deterioration will only make it more difficult for merchants to have ‘at risk’ contracts performed by the buyers.
– In the UK, online retailer ASOS, which was one of the star performers of the Covid online boom, has announced a full year loss as consumers return to the high street and the cost of living crisis bites. ASOS reported that returns have increased markedly as shoppers become more careful with their spending and announced a write off of £100 million of old inventory.
– The USDA export sales report for the week ending 13th October reported sales of 84,500 bales. Once again Pakistan was the largest buyer with 27,600 bales. In fact, in the last 9 weeks of reports, Pakistan has bought 45% of current crop sales. The second largest buyer was Egypt with 10,100 bales, which ties in with the recent enthusiastic buying of Greek by Egyptian mills. For new crop a meagre 4,400 bales were sold. Exports for the week were 165,700 bales.
– The CFTC cotton on call report, based positions for the week ending 14th October showed a draw down in the current crop on call sales position of 2,297 contracts. This included a draw down of 3,901 contracts in the Z22 with offsetting increases in the future months. As can be seen in the chart below, the Z/H spread has collapsed with the front month and this is taking the pressure off the mills with unfixed Z22 positions who have the option to roll forward at agreeable levels. With the Z/H spread closing at 14 points today, expect to see more rolls in coming weeks.
Cotton has failed to find value in the low 80s and has fallen lower. The money appears to have been a strong seller and the market seems set to test levels which we did not expect to see until later in the season. Nevertheless, we have not seen a major change in the fundamentals over the last few weeks and, we would expect to see the market settle into a range of 73-86 for the near future.
*Please note that we only share CFTC CTO on weekend reports.
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