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Weekly: China Virus Takes ICE Cotton Down In Worst Weekly Performance In 4 Weeks; Range Bound Trade Seen

27 Jan 2020 8:03 am
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Mumbai (Commodities Control) – ICE Cotton lost 180 points through the week, marking its biggest weekly percentage decline since mid-September. After gaining nearly 800 points between December 4 and January 13, the market has started to pull back, with the erratic swings of this week signaling that there is some uncertainty and confusion among traders.

Friday stamped a closing in red for cotton futures; contrary to the triple digit gain on 17th January.

Cotton futures on ICE fell 63 points on the last trade day of the week. The fibre dipped as increased aversion to risk in financial markets spilled into commodities that overshadowed a strong weekly export sales report.

Cotton contracts for March fell 63 points to end at 69.4 cents per lb, trading within a range of 69.35 and 70.25 cents per lb. May 20 Cotton closed at 70.2, down 55 points. March-May spread stood at 80 points, down from 94 points in the previous week.

The tone for the truncated week was set right from Tuesday, when market panicked on the outbreak of a new corona virus, which originated in Wuhan, China and has since spread to other parts of the world.

Plus, market stands uncertain about the details pertaining to China buying more U.S agricultural goods after initial trade deal signing on 15th January.

Cotton Futures dipped 200 points on Tuesday’s close as speculators rushed to sell. While on Wednesday, those speculators found their way back through short covering. The fibre upped on mill buying and managed a triple digit rebound, by gaining 128 to 189 points. However, this was short-lived, as Thursday and Friday saw market gripped in the fear of Corona Virus disrupting travel and commerce, World Over.

Another factor that weighed on ICE cotton was the sharp drop of cotton prices in China and India, this week. For China, it was a combination of the virus outbreak, abundant local supply and the potential for more imports after the signing of the US/China trade deal that added up to a more negative sentiment. In India, it seemed to be the strong pace of arrivals, over 220 k bales daily, and a higher crop estimate that weighed on values.

Experts will be closely watching India cotton scenario. CCI has been supporting prices by absorbing about 4 million bales so far. This cotton will eventually find its way back into the market after harvest has been completed, which should keep a lid on values.

Commitment of Traders report with data and positions from 21st January showed that managed money reduced their net long position by 1214 contracts to 29049 contracts whereas trade reduced their net short position by 4259 contracts to 83310 contracts. The open interest stood at 303,509 contracts, up 3952 contracts from the previous week.

The only amiable factor through the week came on Friday with USDA’s delayed weekly exports-sales data. For the week ending 16th January cotton bookings were up 32.12% with the USDA reporting 307,764 RBs of sales.

The week’s sales were the highest since the week ending 7th November. In the same report, USDA listed exports at 282,590 RBs, a weekly reduction of 6.34% but an increase of 18.45% over the same week last year. MYTD cotton shipments are at 4.721m RBs, which is 16.57% more than last year at this time.

Having said that, it is more likely that trade will be a light net buyer in current crop futures over the next four months until July goes off the board and new shorts will likely be put on in December.

Market experts see a range bound market over the coming weeks, somewhere between 68 and 72 cents, with the next impulse probably coming from outside markets or events.

(Commodities Control Bureau)

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