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Weekly: ICE CottonManages Modest Weekly Gain Amid Lingering Virus Fears; Sideways Trend To Continue

23 Feb 2020 10:12 am
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Mumbai (Commodities Control) – ICE March cotton closes the week 146 points higher, while May contract managed 0.54% positive closing for the week. However, the near month contracts fell on Friday on soft export-sales data and spike in new corona virus cases, intensifying fears that the epidemic will hurt the global economy and in turn demand for the natural fiber.

The USDA released Export Sales data for the week ending 13th February, showing 235,302 RBs of upland cotton sold on the week. That is 32.94% lower than last week’s sales, and 30 percent from the prior 4-week average.

On Friday ICE cotton March contract managed to close 18 cents higher at 68.93 cents/lb. March futures were up 146 points wk/wk. While Cotton contracts for May settled down 37 cent at 69 cents per lb. It traded within a range of 68.45 to 69.36 cents a lb. March-May spread narrowed to 7 points, down from last week’s spread at 100 points.Friday marked the last trading day before March contract entered into its notice period.

The holiday-shortened week began with a positive double digit close, scaling a more than 2-week peak on Tuesday, after China said it would give tariff exemptions on imports from United States to fulfill trade-deal commitments. Cotton contracts for May settled 46 points higher at 68.87 cents per lb. Prices hit 69.72 cents/lb, a peak since Jan. 31, earlier in the session.

China decided to grant exemptions on retaliatory duties imposed against 696 U.S. goods, the most substantial tariff relief to be offered so far.

Wednesday carried the positive sentiment through the closing session, as market weighed the possibility of China’s economy getting back on its feet. Cotton futures rose to a near three-week high as the number of coronavirus cases dropped in China, easing fears of an economic slowdown in the world's second-largest economy.

March Cotton closed at 68.48, up 61 points. Cotton contracts for May rose 78 points to settle at 69.65 cents per lb. earlier in the session prices rose to 70.24 cents per lb, a level last seen on Jan.30.

Come Thursday, the rally fizzled out on Dollar strength. March Cotton closed at 68.75 cents, up 27 cents points, while cotton contracts for May settled down 28 cents at 69.37 cents per lb. It traded within a range of 68.88 to 69.81 cents a lb.

The yuan weakened to a more than two-month low of 7.0289 against the dollar at one point in Thursday morning trade.

Intensifying virus worries, South Korea became the latest victim of coronavirus outside China that reported its first death on Thursday. A jump in reported cases of the virus beyond the epicentre in Hubei province in China took a toll on global financial markets.

"Certainly the longer it goes on the more impact it will have (on cotton)," said Sid Love, commodity trading adviser at Kansas-based Sid Love Consulting, adding the concerns over the virus also offset limited support from a projected drop in cotton acreage in the United States.

The U.S. Department of Agriculture (USDA) on Thursday projected U.S. cotton plantings at 12.5 million acres in 2020. Meanwhile, the NCC cotton survey shared on Saturday has US growers planting 12.8 million acres of upland cotton and 244,000 acres of ELS varieties. The total would be down 5.5% from last year. The NCC also listed expected exports to China at 2.5 million bales in 2020/21, up from the 2 million projected for 2019/20.

With the United States, Pakistan and China looking at less acreage than a year ago, merchants and mills have a reason to mop up existing supplies, which is why the market has been holding up well despite the virus threat, Peter Egli, director of risk management at British merchant Plexus Cotton, said in a note.

The United States is the biggest exporter of cotton, while China is the biggest consumer.

Meanwhile, a USDA report showed net sales of 235,300 running bales (RB) for 2019/2020, down 33% from the previous week and 30% from the prior 4-week average. Exports of 375,700 RB were down 6% from the previous week, but up 5% from the prior 4-week average.

Market analysts mark that although the market has rallied northward since the beginning of this month, there’s lesser reason for prices to move much higher from current levels.

The weekly Commitment of Traders report from 18th February showed that Cotton speculative traders were 31,429-contracts net long on Feb 18, which was 7.23% lower wk/wk. For the week, managed money added 755 contracts to the long side, while 3207 contracts were added on the short side. The open interest for the week ended 18th February stood at 232,528 contracts, down 16,496 contracts from the previous week.

Experts note that cotton has its steady support at 67 cents, unless off course the virus situation escalates. Having said so, the topside may be limited at around 70-71 cents due to large amount of unsold cotton in India, marking continuation of the sideways trend.

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