China’s Zhengzhou futures continue lower

Cotton futures on the Zhengzhou Commodity Exchange (ZCE) have fallen significantly for a third consecutive day. Turnover expanded in almost every month, except for July and March. Contract settlements from January through May ended below 15,000 yuan per tonne, which is generally considered as a sensitive line, equivalent to the cost level. The market this week has been dominated by bearish sentiment. Some institutional investors have entered the market as sellers.

The bearish sentiment is derived from the fact that  the cotton state reserves still amount to about 11.5 million tonnes, according to Cotton Outlook’s estimate. Cumulative cotton imports by the end of May (since September 1) were 2,300,452 tonnes. Although this represents a decrease  of 34.5 percent compared with the same period last year, and although the 2014/15 production forecast might turn slightly lower, owing to recent weather developments in Xinjiang, the ample supply and  weak recovery of domestic cotton consumption are proving more influential on sentiment. Moreover, further influence has been drawn from the USDA’s recent  report of an increased planted area in the US and signs of good growth progress.

Today’s turnover in Zhengzhou was 139,240 contracts (of 5 tonnes each), the highest daily figure since April 8. Open interest increased by 23,314 contracts to 307,116, the peak figure since February, 2013. At the close of business, the top 20 brokers were holding 97,683 long positions (6,460) and 97,769 short positions (5,123).

The certified stock  increased by one lot to 120 (1 lot equals 185 bales, ±5).

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