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Weekly: ICE Cotton Ends Down On Worsening US-China Trade Relations

12 Aug 2019 7:39 am
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MUMBAI (Commoditiesontrol) – Cotton prices on the Intercontinental Exchange ended down last week despite a rise in weekly export sales and fall in the weekly crop quality as traders remained concerned over the worsening trade relations between the US and China.

The most active December cotton contract ended down 0.9% at 58.90 cents per lb. Volumes in the December contract dropped to 12,322 compared with 31,930 a week ago. The March 2020 contract also ended down 1.4% to 59.86 cents per lb.

Since the beginning of the week, the volley of comments between the US and Chinese officials indicated at a breakdown in trade relations between the two countries, thereby keeping prices soft.

Monday, the Chinese Commerce Ministry asked its state-owned companies to suspend purchases of US farm products and did not rule out imposing import tariffs on US farm products that were bought after Aug. 3. A media report suggested that private Chinese companies that had received retaliatory-tariff waivers on US soybeans from Beijing have stopped buying the commodity due to uncertainty over trade relations.

Incidentally, on Monday, the yuan slipped to an 11-year low against the US dollar, past the 7-yuan mark, prompting a number of US authorities to cry foul. US Treasury Secretary Steven Mnuchin accused the Chinese central bank of letting the yuan fall, designating China as a “currency manipulator” as a weaker yuan makes purchases from US costlier, while Chinese imports turn favourable.

By Tuesday, US President Donald Trump assured the farmer community and hinted at financial aid to help US farmer tide over lack of demand from China.

Last week, Trump said he would impose an additional 10% tariff on $300 bln worth of Chinese goods, starting September 1.

By Friday, the mood worsened as Trump tweeted that China wanted a trade deal “badly” as a number of companies were leaving the country.

“China wants to make a deal so badly. Thousands of companies are leaving because of the tariffs, they must stem the flow. At the same time China may be hoping for a Democrat to win so they could continue the great ripoff of America, and the theft of hundreds of billions of dollars!” Trump tweeted.

Trump also ruled out further discussions that were earlier scheduled next month in Washington.

“We’re talking with China. We’re not ready to make a deal - but we’ll see what happens,” Trump told reporters adding, “China wants to do something, but I’m not ready to do anything yet. Twenty-five years of abuse - I’m not ready so fast, so we’ll see how that works out,” he said.

With the trade relations deteriorating, even the rise in the weekly export sales was not enough to lift prices through the week.

According to data released by the US Department of Agriculture for the week ended August 1 on Thursday, net sales for 2019-2020 stood at 179,500 RB with increases reported for China (60,100 RB), India (28,700 RB), Japan (18,100 RB), Vietnam (14,300 RB), and Pakistan (12,300 RB). Total sales of 7,372,800 RB were carried over from the 2018-2019 marketing year that ended on July 31, USDA said. Exports for the period ending July 31 stood at 272,700 RB, bringing down cumulative exports to 13,158,900 RB, down 11% on year.

Exports for August 1 stood at 72,800 RB, with Vietnam (35,800 RB), Turkey (8,800 RB), China (5,400 RB), India (5,100 RB), and Bangladesh (4,800 RB) being the primary destination. Net sales of Pima cotton for 2018-2019 totalled 8,800 RB.

Prices rose in reaction to the export sales on Thursday, noticing the demand from China. However, it remains to be seen if these orders will stand cancelled going forward given the drastic change in the political environment.

Prices were also supported by the fall in crop quality report as detailed by the USDA on Monday. The report for the period ending August 5 showed that the crop in the 15 cotton-growing states was rated 44% “good”, down slightly from 42% a week ago. The “excellent” rating also slipped to 10% from 15% a week ago. The 15 states reported a “fair” rating at 33%, compared with 28% a week ago.

By Friday, prices turned bearish on technical-based selling and ahead of the monthly supply-demand report that will be released on Monday.

Data released by the US Commodities Futures Trading Commission data for the week to August 6 showed managed money traders were net short by 3,637 positions widening the total net short positions to 47,428. Open interest for the week stood at 281,148, up 22,429 on week.

Monday, prices will take cues from the WASDE report and the weekly crop quality report.

A Bloomberg survey has pegged US cotton ending-stocks for 2019-20 at 7.2 million bales, 488,000 bales higher than its July estimates, while US exports are seen falling to 16.5 million bales, down 513,000 from the July estimates.

The support and the resistance for the December contract are seen at 58.56 cents and 59.47 cents respectively.

(Commoditiescontrol Bureau)

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