WEEKLY: ICE Cotton Down For Second Straight Week On Demand Worries

MUMBAI (Commoditiescontrol) – ICE cotton futures edged down for a second straight week (Nov 12-16) mainly on concern about demand amid trade war, expectations of a slowdown in global economy, particularly in emerging markets followed by strength in dollar. The sharp sell-off in crude oil prices during the week was also one the factors which weighed on natural fiber prices.

The most-active March cotton futures settled this week down nearly 2% at 78.29 cents per pound. The contract during the week ranged between 77.50 to 79.85 cents per pound. The near month December contract fell as much as 2.5% to settle at 76.12 cents per pound.

Volume and open interest in March contract this week increased by 13.50% w/w and 23%, respectively.

Fears of more cancellation of cotton bales from China amid trade war with U.S. have continued to shadow investor sentiments. Demand for cotton was high last season 2017-18, but there is doubt about it this season 2018-19 in the wake of recent developments in global economic scenario.

US crude futures dived more than 7% on Tuesday, suffering their biggest one-day loss in more than three years amid concerns about weakening global demand and oversupply.

Falling oil prices make competing synthetic fibers like polyesters, which use petroleum, cheaper, potentially denting demand for the natural fiber crop.

Worries over slowdown in global economy also pressurised market sentiments. This week it was announced that the GDP of Japan contracted at a 1.2% annualised rate in the third quarter, while that of Germany dropped by 0.8%. In China consumer spending is at a five-month low and bank lending is down.

There are now signs that the US economy, which has been one of the main engines behind global growth, is slowing down. This has been reflected by a weakening stock market.

Meanwhile, crop progress report revealed that U.S. cotton crop only 54% harvested as on Nov 11 and the crop is under stress amid wet and cold conditions, with West Texas and the Memphis territory experiencing snow this week. The main concern is now higher availability of lower grade cotton in U.S., which is likely to be priced at discounted rates and may pressure cotton prices. However, expert believes that the quality of cotton fiber is still good and may attract overseas buyers to procure at lower rates.

U.S. Weekly Export Sales
US cotton net export sales for the week ended November 8 dropped 14% week-on-week at 83,768 Running Bales (RBs) for 2018-19 (Aug-Jul), while shipments also remained slow by 25% w/w at 116,278 RBs, according to latest USDA report.

Although Cancellation were slightly better than last year, but still remained significantly on the higher side with 59,200 RBs versus 63,800 RBs a week ago. Cancellation from China was at 26,800 RBs.

Total shipment now stands at 15.9%, or 2.38 million bales (480lb), while outstanding for the season totaled at 7.52 million bales (50.1%).

Total commitment for the 2018-19 now reached at 66% or 9.90 million bales against the USDA’s target of 15 million bales.

Weekly export sales and shipment both are well below in order to realize USDA target.

Data was overall bearish for cotton.

CFTC ON CALL COMITTMENTS
Mill on-call commitments against all active contracts were near unchanged for the week ending Nov 9 at around 13.4 million bales (480lb). Producer commitments against all contracts were slightly higher at just above 4.4 million bales. Mill commitments against the December and March contracts are approximately 5.7 million bales against approximately 2 million bales of producer commitments. The on-call report is likely to provide support to the March cotton contract.

CFTC COMITTMENTS OF TRADERS (COT)
The latest CFTC COT report for the week ending Nov 13 reveals that trade shorts had added bearish bets by 1.9% w/w at 11.04 million bales. Other hand index funds and speculators have reduced bullish bets by 7.6% and 4.4% at 4.27 million bales and 0.70 million bales respectively.

The CFTC report is indicating bearish tone to continue as index funds have cut bullish bets quite significantly in terms of percentage followed by increased bearish bets by trade.

CONCLUSION
The negative flow of news is more than positive for ICE cotton, so bearish tone is expected to continue ahead. Investors are likely to keep a close eye on U.S. and Chinese presidents meeting on the sidelines of the G-20 meeting by December end as any fruitful talk between these two largest economies may provide much needed boost to market sentiments, but prices may slip to new low in case trade war deepens The other factors need to watch out are crude oil prices followed by dollar index. Cotton is likely to trade between 76-80 range and either side breakout/breakdown is likely to charge bulls or bears.

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