Texprocil News1 - Handloom Export Promotion Council

News Clippings
When we look at the current US balance sheet, we started with total supply of
20.36 million bales, of which 12.0 million have so far been sold for export and
3.4 million go to domestic mills. However, existing stocks will also have to supply
about 0.9 million bales for domestic mill use and an estimated 0.8 million bales
for export commitments between August and October, before new crop cotton
becomes available. This leaves just around 3.5 million bales available for sale at
this point, which at the current sales pace of 150’000 bales a week would all be
gone within five months, or by the end of August. We therefore expect a
slowdown in export sales from here on forward, not because mills are no longer
interested, but because the US can’t possibly continue to sell at the current pace.
There were some interesting developments on the macroeconomic front this
week, which may have an impact on our market. Potentially bullish, especially in
the longer run, is Japan’s decision to unleash US$ 1.4 trillion in quantitative
easing, effectively doubling its monetary base by 2015. This is by far the most
aggressive move by any central bank so far when compared to the size of the
GDP.
Whether this is just another chapter in an ongoing currency war or whether it is
part of a concerted effort by central banks to keep their economies from
imploding, the outcome is going to be the same! Running the printing press is
tantamount to confiscation by eroding the purchasing power of the currency!
Investors are starting to realize that having money in a bank or in a low-yielding
government bond is probably not the wisest decision in the long run, because
their money is at risk of being confiscated either directly, as in the case of
Cyprus, or by debasement of the currency. Investors are therefore increasingly
seeking diversification into tangible assets, such as real estate, stocks and
commodities.
Another development that needs to be watched is the recent temper tantrum by
North Korea, which has the potential to grow into a full-blown conflict. So far
most observers believe that North Korea is more bark than bite, but any
escalation of the situation could prompt hedge funds to move to a “risk off”
position, which would have a negative impact on commodity markets, as we have
seen on previous occasions.
So where do we go from here? The tug-of-war continues, as neither the spec
longs nor the trade shorts are willing to part with their position. The shorts seem
to have the weaker hand though, because they don’t really have much cotton left
to back up their bets. An estimated 3.5 million bales of uncommitted US cotton,
some of which is not going to be tenderable, against 16.6 million bales of open
interest in May and July futures. And with every decent export sales report this
pool of available US cotton shrinks further. Physical demand for US cotton
shows no signs of slowing down yet, as mills still have a lot of holes to fill
between now and new crop, and there aren’t that many cheap alternatives to US
cotton at the moment. We therefore feel that as the trade procrastinates, it sets
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