Weekly: Trade War Sinks ICE Cotton To 7-Month Low; Eyes Support At Current Level

MUMBAI (Commoditiescontrol) – ICE cotton futures fell sharply for the third straight week as nervousness among market particiapnts over escalating tariff war plagued the market throughout the week followed by easing concerns about substantial crop loss due to hurricane Florence.

Further the slow pace of weekly sales and shipment as required to match USDA’s projected target of 15.7 million bales (480lb) also weighed on prices.

The most-active December cotton futures settled this week (17-21 Sept) down 3.29% at 79.13, lowest weekly close since April 23. The contract during the week hovered in the range of 79.13 to 82.38 cents per pound.

The daily average volume during the week gained over 26% at 19,096 lots versus 15,090 lots a week ago, whereas open interest fell more than 3% at 141,319 lots as against 145,799 lots last week.

Total daily volume of alll cotton contracts during the week was significantly higher by 36.48% week-on-week at 29,441 lots and up 60.21% year-on-year. Open interest of all cotton contracts averaged down 1.22% week-on-week at 253,361 lots, but surged by 5.87% year-on-year.

Meanwhile, China has stared down Donald Trump’s trade war threat and says it will retaliate with $US60 billion in tariffs on US goods to start on Monday.

China’s Finance Ministry said the new tariffs, ranging from 5 per cent to 10 per cent, would be triggered on September 24, the same day Trump’s $US200 billion package of tariffs on thousands of Chinese products comes into effect.

Trump had earlier warned that if China retaliated, he would respond by slapping another $US267 billion in tariffs on Chinese imports - effectively taxing all Chinese goods sold in the US.

China has also cancelled trade talks with the U.S. and abandoned plans to send Vice-Premier Liu He to Washington next week, the Wall Street Journal reported, without saying where it got the information.

WEEKLY EXPORT SALES
U.S weekly export sales and shipments for the week ended September 13 rose 16% and 14% w/w at 101,108 Running Bales (RBs) and 157,635 RBs for MY 2018-19 (Aug-Jul) . Net cancellation increased to 148,900 RBs Vs 135,000 Rbs last week.

The pace of export sales and shipment remained slower than required to match USDA’s 2018-19 projection of 15.7 million bales (480lb).

U.S. has so far shipped 7.3% of cotton, whereas 60.1% committed for MY 2018-19.

The USDA weekly export data was mostly neutral to supportive for the market, but needs more improvement in export sales and shipment in order to provide some good support at the current lower level.

CFTC ON CALL SALES
The total unfixed on call sales in all cotton contracts increased to over 15 million bales as reduction in December 2018 cotton was offset by decent addition in May 2019 and December 2019 contracts.

Unfixed on call sales in December contract fell to nearly 3% week-on-week at 3.6 million bales, but up 15.54% year-on-year from 3.1 million bales. At the same time total unfixed call of all contract was also 13.24 higher y/y at 15.02 million bales.

Producer commitments against all contracts were again off modestly Vs the previous period at approximately 4.28 million bales.

The unfixed mill position continues to show signs of losing power to support the ICE December contract.

CFTC COT REPORT
Trade have reduced net short positions for the seventh straight week by 6.3% at 13.86 million bales versus 14.79 million bales a week ago. Hedge funds have also cut bullish bets by 9.84% w/w at 6.3 million bales.

Trades have cut short bets after good sharp fall in prices during the last few weeks in order to book profit, whereas hedge funds have opted to cut bullish bets as sharp fall may have triggered stop losses.



CONCLUSION
U.S. cotton prices after recent sharp fall have now turned attractive for the overseas buyers, which is likely to provide good underlying support at the present level. Further the market expects that the quantum of tariff slapped by China and U.S. on each other's imports is considered not as severe as considered, which is also a positive factor to watch out for. However, any more escalation in trade war between the two largest economies may bring more nervousness in the market. Overall, we expect cotton may find some support at prevailing rates.

TECHNICAL IDEAS - ICE DECEMBER COTTON - Expect Lower Range To Be Tested

Exit long and sell on rise from 79.13-82.01 with a stop loss of 82.83.

Resistance will be at 79.95-82.01. Lower range can be at 77.08-72.15.



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