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ICE Cotton Slides Double Digit Over Widening U.S. China Rift

23 May 2020 8:54 am
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Mumbai (Commodities Control) – ICE cotton futures fell over 1% on Friday as an escalation in U.S.-China tensions cast doubts over demand for the natural fiber.

Cotton contracts for July fell 45 points at 57.61 cents per lb. October Cotton closed at 57.51, down 86 points. December Cotton closed at 57.81, down 89 points and March Cotton closed at 58.73, down 74 points.

"The contract is down mainly because of the escalation in U.S.-China trade war and we've reached a price level where it is not attractive anymore, so we have to go down," Louis Barbera, partner and analyst at VLM Commodities LTD said.

"Under 57 cents, we will see a big purchase and prices will go up from there."

President Donald Trump's rhetoric against China's plan for a national security law in Hong Kong on Thursday raised concerns over Washington and Beijing reneging on their phase-1 trade deal.

A protracted trade rift between the two economies have raised concerns among investors over demand as the U.S. is the biggest exporter of cotton, while China is its biggest consumer.

However, the latest U.S. Department of Agriculture's weekly export sales data confirmed higher purchases from China for the week ending May 14.

"The Chinese need it and it's cheap and this will also help them to keep the phase 1 deal," Barbera said, adding, if China keeps buying at this rate, cotton could cross the 60 cents level in another 3 weeks.

Lockdowns and disruption in economic activities due to the global coronavirus pandemic have led the contract to fall nearly 17% so far this year.

Meanwhile the initial U.S. Department of Agriculture (USDA) cotton projections for 2020/21 (August-July) includes a closer balance between global cotton production and use than in 2019/20.

Even so, ending stocks in 2020/21 are forecast to increase to their highest in 6 years. World cotton mill use is forecast to begin its rebound from the COVID-19 disruptions that have affected the global cotton supply chain from spinning to retail.

For 2020/21, cotton mill use is projected at 116.5 million bales, 11 percent above the 2019/20 estimate that has seen significant reductions for many countries. In 2020/21, cotton use in most of these countries is expected to rebound, with China, India, and Pakistan leading the increase.

Total futures market volume fell by 13,356 to 12,960 lots. Data showed total open interest gained 2,553 to 182,337 contracts in the previous session.

Support and Resistance for cotton #2 lies at 56.48 cents and 58.78 cents per lb, respectively.

(Commodities Control Bureau)

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