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ICE Cotton Continues Descent On Demand Woes; Crashes By Triple Digit On Pandemic Fears

29 Feb 2020 8:18 am
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Mumbai (Commodities Control) – Cotton futures dropped as much as 3.7% on Friday, registering their worst week in 8 -1/2 years, as the rapid spread of the new coronavirus stoked fears of a global economic slowdown and a decline in demand for the natural fiber.

The crash followed, 4000 point drop in the Dow this week. It was accompanied by NY bank and trading firm forecasts for zero earnings growth for the entire year, and presumably lower consumer demand.

Cotton contract for May settled down 101 points at 61.49 cents per lb. The contract fell to its lowest since September at 60.18 cents earlier in the session. The contract has fallen nearly 11% this week, its biggest weekly percentage loss since mid-July 2011.

July Cotton closed at 62.27, down 101 points and December Cotton ended at 62.44, down 81 points.

World Health Organization has upped its ante on coronavirus suggesting most countries on the planet will be infected. However, the U.S. has yet to have one fatality, and supposedly infections are going down in China.

"There is a lot of panic in all the other markets and that is influencing cotton," said Ed Jernigan, chief executive of Jernigan Global, a cotton textile supply chain manager.

"As the demand and consumption levels in China drop (due to the coronavirus outbreak), so will the level of imports. I think the market is attempting to adjust to that." The rapid spread of the coronavirus increased fears of a pandemic with six countries reporting their first cases.

The surge in virus cases rattled world stock markets, putting them on course for their largest weekly fall since the 2008 global financial crisis, while oil prices fell to their lowest in more than a year.

As per some experts, the unprecedented decline in the Dow Jones and related equity makers has been the single bearish factor for cotton this month.

"The new factor that was thrown into the mix this week was spread of the virus to other parts of the world and that has caused concerns over how it might impact (cotton) demand outside China," Jernigan added.

Total futures market volume fell by 84 to 66,636 lots. Data showed total open interest gained 1,324 to 197,051 contracts in the previous session.

Certificated cotton stocks deliverable as of Feb 27 totalled 37,522 480-lb bales, unchanged from 37,522 in the previous session.

Going forward, Monday will commence a new month and with that the market will see new supply-demand numbers on Tuesday, March 10. Some traders are looking for USDA to increase its domestic exports category. Additionally, the market will be keen on the month’s forthcoming exports-sales reports. The general thought is once the Dow calms, the cotton market may very well experience a comeback from its supremely oversold status.

Support and Resistance for Cotton #2 lies at 58.89 cents and 64.07 cents/lb, respectively.

(Commodities Control Bureau)

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