According to feedback from some cotton textile companies/cotton middlemen in Jiangsu, Zhejiang, Shandong and other places, ICE cotton futures have continued to rebound sharply since late July (the main December contract has risen from 82.54 cents/pound to 119.59 cents/pound , soaring by 37.05 cents/pound in less than a month, an increase of 44.89%); coupled with the recent “double decline” in stocks of bonded cotton and non-bonded cotton in China’s main ports and the expectation that US cotton exports will be large in 2022/23 As a result, some cotton companies are significantly less willing to implement purchase and sales contracts signed before late June to late July, or postpone performance due to various reasons such as epidemic prevention and control, high temperature power cuts, etc.; or require buyers and sellers to renegotiate the contract. Add an attachment to the price; or propose that the seller repurchase the contract at an appropriate price.
A medium-sized cotton spinning mill in Jiangsu said that in 2021/22, due to the slow sales progress of domestic and imported cotton, the “buyer’s market” is very prominent, so the proportion of cotton purchase contract deposits is generally 10%-20%. Recently, the main contract of ICE cotton futures has increased by nearly 45% (the price increase of cotton spot quotations such as ship cargo and bonded cotton has been slightly lower than that of ICE). Some cotton companies have adopted actions such as breach of contract, refunding deposits and providing certain financial compensation to buyers. Buyers generally believe that cotton prices have skyrocketed, contracts have not been executed, and the amount of funds occupied is relatively low. Therefore, if the seller can pay a certain amount of breach of contract compensation, it is acceptable. On the one hand, the buyers and sellers are mostly long-term partners and do not care about temporary gains and losses; On the other hand, the ICE rebound has started early, which may have overdrawn the benefits of the Texas drought, the Fed’s slowdown in interest rate hikes, and rising grain futures. The decline in global cotton consumption may be much higher than expected by USDA, ICAC and other institutions, and the ICE midline has fallen. The probability is higher. In addition, traceability orders are still mainly “short orders and small orders”, and cotton textile companies/middlemen are not “waiting for rice to be ready”, so the wait-and-see sentiment is strong. However, ICE violently rebounded, causing more disputes over foreign cotton purchase and sales contracts than in the previous period, and an increase in arbitration applications.
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