Cotton users are halting orders from the U.S., the world's biggest exporter, at the fastest pace in at least a decade as the economic slowdown erodes demand from China and sends prices to a six-year low.
Delays, cancellations and order reductions of U.S. upland cotton by foreign buyers rose almost sevenfold from a year earlier to 329,600 running bales (74,752 metric tons) in the first 13 weeks of the marketing year that started in August, data from the U.S. Department of Agriculture show. The level is the highest since at least 1998. A bale weighs 500 pounds.
Cotton prices are down 55 percent from a 12-year high in March, and Barclays Capital says demand is so weak no rally is likely to last. Commodity buyers from metal recyclers and sugar processors to clothing makers are struggling to honor contracts signed when prices were higher.
"We are seeing quite a few delays," said Andy Weil, president of Weil Brothers Cotton Inc. in Montgomery, Alabama, and past president of the American Cotton Shippers Association. "Demand is in a terrible state of affairs. When Chinese exports depend on American and Europeans economies, which are now in a recession, they have no demand for raw materials."
Demand, Prices Fall
China, the world's biggest cotton importer, canceled or delayed 34,100 bales of U.S. orders in the week ended Oct. 23, or 4,100 bales more than its new orders, according to the USDA. Total reductions reached 41,300 bales that week, including buyers in Bangladesh and Indonesia. A week later, cancellations and delays were 11,500 bales from buyers in China, Turkey and Indonesia, government reports show.
The USDA said on Nov. 10 farmers will sell upland cotton, the most common variety in the U.S., for 45 cents to 55 cents a pound in the year through July 31, down from an October estimate of 51 cents to 62 cents, and below 59.3 cents in the previous year.
Cotton for March delivery fell 0.89 cent, or 2.1 percent, to 41.62 cents a pound on ICE Futures U.S. in New York, down from 92.86 cents on March 5, at the time the highest price for a most-active contract since September 1995. The 23 percent drop in October was the biggest monthly decline since at least 1986.
Global cotton use will drop 3.3 percent to 119.3 million bales in the current marketing year, the USDA estimates. China will consume 51 million bales, down from an initial estimate of 55 million and the first annual decline in a decade, as consumer spending falls, the USDA said.
'Very Difficult Time'
China's cotton imports from January through October dropped 8.3 percent from a year earlier to 1.87 million metric tons, according to the Beijing-based Customs General Administration.
Jiangsu Yulun Textile Group Co., a yarn spinner in Jiangsu province, buys cotton to last less than a month, compared with three months of inventories in the past.
"We are having difficulty with financing," Zhang Jianhong, manager of materials at Jiangsu, said by telephone from Qingjiang. "The risk of importing cotton is very high. The downstream businesses, the clothing manufacturers, owe us money. All we have are bunch of IOUs. It's a very difficult time."
Cotton consumption will be lower than previously expected in Pakistan and Turkey, the largest importers after China, according USDA forecasts.
Demand 'Non-Existent'
"For my company, the demand is fairly non-existent," said Angie Goodman, president of Lubbock, Texas-based ACG Cotton Marketing LLC, which ships cotton mainly to Turkey. "They are buying in a hand-to-mouth method."
Same-store sales by department stores in the U.S., the world's largest economy, fell 11 percent last month and 19 percent for luxury retailers, the International Council of Shopping Centers said Nov. 6. Macy's Inc., the second-biggest U.S. department-store chain, is buying less merchandise and reducing capital spending to prepare for a disappointing spring shopping season, Chief Financial Officer Karen Hoguet said on an earnings conference call with analysts Nov. 12.
