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Weekly: ICE cotton Ends Up On Short-Covering

21 Jul 2019 10:10 pm
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MUMBAI (Commoditiesontrol) – Cotton prices on the Intercontinental Exchange managed to end marginally up for the week on short covering by speculators on the last trading day of the week.

On Friday most active December contract gained 136 points which helped cotton to close the week with gains of 39 points. March 20 contract gained 110 points to end the week with gains of 24 points. Spread between December and March contract was up at 113 points against 106 points the previous week.

Cotton prices began the week on a firm note as traders covered their short positions anticipating crop losses from the tropical storm Barry which hit the coast of Louisiana last weekend.

However, these concerns were brushed aside after the US Department of Agriculture detailed the crop status report which showed the overall crop was rated 56% good/excellent, up compared with 54% a week ago and last year’s 41% good/excellent. Texas was rated 52% good/excellent and Georgia was given a 59% good/excellent rating.

The online spat between US President Donald Trump and Chinese officials over the Chinese economic growth raised doubts over the impending trade deal between the two countries which had a negative impact on prices.

Tuesday, CNBC reported Trump as saying there was a long way to go for the US-China trade deal. Trump’s comments on the Chinese economy, which slipped to 6.2% in the second quarter, did not go well with some of the Chinese officials.

“China’s 2nd Quarter growth is the lowest it has been in more than 27 years. The United States Tariffs are having a major effect on companies wanting to leave China for non-tariffed countries. Thousands of companies are leaving. This is why China wants to make a deal....,” Trump tweeted.

Adding to the fall in prices during the week was the export sales data which reported a disappointing number, while China remained absent from the purchases. Markets touched three years low with December contract hitting intraday low of 61.66 cents/lb

Thursday, the US Department of Agriculture released the weekly export sales for the week ended July 11, which showed net sales of the 2018-19 crop stood at 54,000 RB, merely up 1% from the previous week. For the 2019-2020 crop, net sales of 218,900 RB were reported, while exports were 310,300 RB, down 7% from the previous week. Net sales reductions were reported for the high-grade Pima cotton at around 5,300 RB--a marketing-year low.

On Friday markets moved up sharply on hopes of resumption of US-China trade talks which were stalled for some time. Further adverse weather condition in India was also a positive factor for market recovery.

Meanwhile, China continued to auction cotton from its state reserves and is said to have auctioned around 10,700 metric tons, or 48,715 bales on Thursday.

Data released by the US Commodities Futures Trading Commission data for the week to July 16 showed Trade (Producers, Merchants, Processors, users) continued to add fresh long position thereby reducing their net short to record low at 5703 contracts. Whereas managed money traders (Hedge funds) added 2,544 contracts to their total net short positions to 44,270. Open interest at the end of the week stood at 246,085, up 4,347 on week.

Globally demand for cotton yarn and cotton fabrics are reported to be weak which is evident from declining yarn and fabric prices in Indian subcontinent and South East Asia. At lower level also there is not much demand indicating prices are still away from the bottom. This, in turn, will impact demand for cotton and cotton prices.

Current rally appears to be a relief rally in oversold market on hopes of resumption of trade talks and adverse weather condition in India. But this rally may terminate any time soon as factors like weak global demand for cotton and large US crop reemerge again and pull down the price again.

This week, traders will closely watch the crop status report that will be detailed late Monday.

Support for December contract is 61.66 cents and resistance is at 64 cents/lb.

(Commoditiescontrol Bureau)

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