Last week (July 18-22), the international cotton market remained calm. Although adverse news appeared from time to time in the market, the overall price did not change much. The ICE futures December contract rose to 93 cents and then slowly fell back. It is now back to normal. Back to around 90 cents. After experiencing a “rapid drop”, cotton prices have found the bottom twice, and have been consolidating at a low level close to 90 cents for most of the past month.
When the price was consolidating at a low level, some speculative shorts began to enter the market. ICE futures positions have increased in recent weeks. It will take time to verify whether these shorts will continue to stay dormant or wait for opportunities to cover. For now, concerns about U.S. cotton supply have not diminished at all. Although the situation in the south-central and southeastern regions of the United States is getting better, the situation in the southwest is getting worse. U.S. professionals predict that due to the abandonment rate in Texas It may far exceed official expectations, and the rate of good and good seedlings is too low and the proportion of poor seedlings is too high. U.S. cotton production this year may be about 1.5 million bales less than the current forecast.
Despite this, threats to cotton prices from the macroeconomic and external markets are still dominant at the moment, and cotton’s own fundamentals continue to take a back seat. Last week, the global interest rate drama took turns, and the European Central Bank announced a 50 basis point interest rate hike. This week, the Federal Reserve will continue to raise interest rates, which is widely expected by the market to be 75 basis points, and does not rule out a 100 basis point increase. At the same time, the second quarter GDP of the United States will also be released. For commodities, the current market risks are still considerable, and financial markets will not dare to act rashly until U.S. inflation has peaked.
From the perspective of demand, due to the sharp decline in cotton prices, slow downstream orders, and difficulty in digesting high-priced raw material inventories, global textile mills are currently in a difficult situation, making it difficult to maintain cotton procurement, and it will still take time for the spot market to return to normal. Although the situation of US cotton signings improved a lot last week, the number of contract cancellations is increasing, and China has not increased purchases. In the long term, whether cotton consumption can be maintained remains the key to market direction. In the current market environment, it is expected that ICE may continue to consolidate around 90 cents until the macro crisis is resolved or subsides.
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