Weekly: ICE Cotton May Trade Volatile Ahead On Mixed Fundamentals

MUMBAI (Commoditiescontrol) – ICE Cotton futures closed this week (Jul 16-20) on negative note in subdued trade activity as volume remained dull throughout the week as market players opted to wait and watch due to ongoing trade war and weak US weekly export sales data.

Trump Administration on Friday threatened to hammer China with an additional $500 billion of import levies. Immediately, the shock waves ran through most financial and commodities markets. However, as the day progresses, emotions subsided, and cotton was able to pare its losses.

Texas remained in the grips of a steep heat wave. Temperatures soared well over 100 degrees, causing record-breaking electricity demand for the region. Those triple-digit days are expected to carry over into next week.

On Monday, USDA will issue another round of crop condition number and the Market will be expecting to see some deterioration to the 2018 crop.

The most-active December delivery cotton closed 0.86%, or 0.76 cents down to 87.08 cents per pound this week. It traded within range of 86.20 to 88.80 cents per pound.

The spread between December and March was inverted at 0.12 cents on July 20 versus 0.88 cents a week ago and 2.78 cents a month ago.

Daily volume in December contract averaged at 10,798 lots versus 15,444 lots a week ago. The participation was low as most of the major events have already been happened and now uncertainty lingering about trade spat between U.S. and China.

Similarly daily open interest in December futures averaged at 176,155 lots versus. Total open interest on ICE cotton is still higher at 258467 lots than 217,465 lots last year. However, it is difficult to predict next week trend as market is now in an indecisive mode due to mixed fundamentals.



WEEKLY EXPORT SALES
U.S. weekly cotton export sales for the current marketing year 2017-18 (Aug-Jul) as on July 12 dropped 89% week-on-week to 13,721 Running Bales (RBs) with shipment also fell 13% to 239,690 RBs.

The pace of shipment is slow and it seems difficult to achieve the export target of 16.2 million bales with this pace as only 2 weeks left for end of the current season. The weekly shipment needs to be averaged at 623,247.69 bales (480lb) in order to realize USDA's target.

Total shipment for the current season reached at 92.3%, while outstanding at 15% with total commitment reached at 107.3%.

ON CALL REPORT
The latest on call report data showed that unfixed call of all contracts increased to 14.93 lakh bales, and this a substantial number at this point of time. Unfixed on call sales mainly rose in July, December and March 2019 contracts. Producer commitments against all contracts expanded to around 4.2M bales.

Despite the big drop in the market four weeks ago, most mills have been holding out for lower prices and are therefore in no hurry to chase the market higher at this point.

CFTC COT REPORT
The CFTC report as on week ended July 17 revealed that trade net short positions have increased bearish bets and it now totalled at just over 16 million bales (480lb). At the same time, the hedge funds have increased net long positions week-on-week to over 8 million bales. Speculators too not leaving their positions easily as their net long positions stood a tad down week-on-week at 1.9 million bales.

CONCLUSION

It is difficult to predict where market will go ahead due to mixed fundamentals. The key trading range for December cotton is likely to be at 82 level on the downside, while 94 level will act as crucial resistance. The market needs to break these levels with volume in order to confirm the direction of market and till then volatile trade can’t be ruled out.

(By Commoditiescontrol Bureau; +91-22-40015533)