US cotton traders expect a physical delivery of the fibre against the expiring July contract, large enough to deplete swelling exchange stocks 20 percent or more, and tighten supplies heading into the new 2013/14 crop year. ICE Futures US certified stocks are at three-year highs of almost 600,000 bales. But almost a fifth of that total was already slated to be delivered against the nearby contract when it expires on July 9, according to exchange data. Dealers said they expect orders to push that total higher in coming days.
The exchange issued notices for 1,030 contracts worth of cotton to be delivered as of Tuesday, equivalent to about 100,000 bales of cotton. That was a sharp jump from just 116 contracts listed on Monday, and traders expect that total to increase before the contract expires. One US broker estimated it will be as much as 400,000 bales. "This shows that someone needed the cotton, and so they're sourcing it from the board," the US broker said.
Newedge USA LLC was listed as the main taker of 1,017 of the July contracts, the most recent ICE data showed, with dealers saying the futures broker will receive it on behalf of a single large merchant that needs fiber for sales already on the books. The identify of the merchant is not certain. "This shows demand. The stopper must have a home for that cotton, it must be sold," said John Flanagan, an analyst at Flanagan Trading Corp in North Carolina.
A delivery of that size would remove some 65 percent of 620,000 bales of available exchange stocks, including over 576,000 bales of certified and another nearly 50,000 bales awaiting review by the US Department of Agriculture. That would severely deplete domestic supplies even as demand from China, the world's top textile market, shows no signs of abating.
The global surplus this season will be a record, but Beijing's state reserve is expected to hold more than half of the over 80 million bales, which is therefore not available to the market. That has forced mills in the country to increase imports to offset the shortage of local supplies.