Turkey to halts orders for US cotton as prices surge

Turkey to halts orders for US cotton as prices surge

NEW YORK - Reuters
Turkey to halts orders for US cotton as prices surge

Turkey’s appetite for US fiber was a pocket of strength as US traders and growers worry that a decision by Beijing to dismantle its three-year stockpiling program will erode foreign demand and hurt prices.

Cotton buyers in Turkey and Vietnam, two of the top consumers of natural fiber, have canceled orders for some 35,000 bales of fiber, U.S. government data showed, the latest sign that soaring prices have crimped demand.

Data for the week to March 6 showed Turkey and Vietnam accounted for the bulk of the 35,000 bales of cancellations stoking fears about contract defaults for traders still reeling from a wave of reneging during the price volatility of 2011.

Benchmark prices on ICE Futures U.S. finished the day down, stemming a three-day rally, under pressure from the export sales report.

The total marked the biggest net cancellations in a month and came after prices jumped toward August highs near 94 cents a lb amid concerns about depleting domestic supplies.

Turkey, the largest buyer of U.S. cotton so far this season, dropped at least 19,300 bales, the country’s largest cancellation since October.

The orders may be delayed or rolled forward in anticipation of lower prices, market sources said. Traders said the cancellations were likely of “on-call” sales, which are booked but priced at a later date.
“Mills who have on-call contracts are suffering right now. Some might think that cancellation of the contract is a better option then fixing (prices) at these levels,” said one Turkish trader.

Tight supply

Turkey has committed to buy some 1.86 million running bales of cotton for the current season to end-July, USDA data shows.

Buyers in Vietnam joined, cancelling a net of 11,700 bales in the most recent week. Cancellations were also reported for India, Italy, and Egypt.

Turkey leapfrogged China as top U.S. cotton buyer in late 2013 as Beijing began to ready an overhaul of its stockpiling program that has driven voracious import demand in the world’s top textile market.
Vietnam is the No. 4 buyer of U.S. upland cotton so far this season, behind Turkey, China, and Mexico.
Concerns over tight U.S. supplies have supported prices so far this season as farmers harvested their smallest crop in four years.

Even so, some saw the cancellations as cause for worry.

“Cancellations are not a good sign. The market could get hammered,” said Jordan Lea, chairman and co-owner of Eastern Trading in South Carolina.

In addition to taking the wind out of cotton’s recent rally, it reinforced worries over counterparty trust after merchants after some lost millions when price swings of a few years ago prompted record contract defaults.

In recent years, Vietnamese mills were some of the worst offenders in defaulting on contracts, according to the International Cotton Association which keeps a record of arbitration proceedings.