According to feedback from some cotton traders in Qingdao, Zhangjiagang and other places, affected by the sharp plunge in ICE cotton futures since mid-June, foreign cotton cargoes and bonded cotton quotations have all fallen (due to export companies and traders generally raising the basis, Therefore, the spot adjustment is weaker than that of ICE futures), triggering a large number of cotton textile mills and middlemen to inquire and place orders. In particular, the signed export performance of US cotton in 2022/23 is strong. However, due to the excessive decline of ICE in just over half a month, a large part of the cotton contracts signed in April/May faced implementation difficulties.
Zhejiang’s medium-sized cotton trading company stated that it has recently received notices from several customers, hoping to postpone the performance of the 2021/22 US cotton contract or renegotiate the price or sign a supplementary agreement; some customers said they would not pick up the goods or even settle the order if negotiations failed. breach of contract. According to industry analysis, on the one hand, according to the contract, ICE futures have fallen by such a large margin. If the contract is not fulfilled, the two parties can negotiate the contract price and then sign a supplementary agreement; on the other hand, most international cotton merchants and traders charge 10%-15% contract deposit ( Some large customers and old customers may only charge 5%-10% of the contract margin). Therefore, when ICE futures fall by more than 25%, the buyer’s willingness to reduce purchase volume, request renegotiation or even directly break the contract increases significantly. In addition, the recent continued appreciation of the RMB exchange rate against the US dollar is also detrimental to the performance of early cotton purchase contracts.
Another headache for cotton trading companies is that since the 2021/22 year, the main ICE cotton futures December contract rose from 88.09 cents/pound to 133.79 cents/pound and then plunged back to the current 91.20 cents/pound. The astonishing “roller coaster” market situation, and the different entry times of various traders into the market lead to great differences in the cost of purchasing foreign cotton. In addition, there are differences in the financial costs and capital status of each company and differences in judgments on the direction of the cotton market in 2022/23. Therefore, At present, the quotations for bonded cotton and 2021/21 cotton cargoes at various ports in China are very different and confusing. For example, the fixed price of bonded 2021/22 US cotton ME 31-3 36/37 at Qingdao Port is 141-147 cents/pound; while the fixed price of bonded Brazilian cotton M 1-1/8 is 135-142 cents/pound. pounds, the price difference generally reaches 6-7 cents/pound, which makes cotton purchasing companies a little confused.
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