Mumbai (Commodities Control) – Cotton futures ended just 21 points higher, after much drama, for the week ended 1st May. It was the second consecutive week of gains for cotton. For the week ended 24th April, most active cotton contract ended 277 points higher.
Renewed fears of trade war between the United States and China came heavily upon the fibre, after it had garnered 232 points between 28th and 30th April.
ICE cotton futures slipped as much as 3.5% on Friday as U.S. President Donald Trump's threat to impose new tariffs on China weighed on market sentiment, but the natural fiber managed to record a weekly gain as countries eased coronavirus-led lockdowns.
The cotton contract for July settled down 149 points at 55.84 cents per lb. It traded within a range of 55.33 and 57.47 cents a lb. October Cotton closed at 57.24, down 148 points. The July-October spread stands at 140 points.
"I think the markets are a little bit more concerned today that the tariffs could come back," said Bailey Thomen, cotton risk management associate with INTL FCStone.
"There's a lot of uncertainty about (whether) China is going to be able to import all of the commodities from the U.S. that they've agreed to."
Trump said his concerns about China's role in the origin and spread of the coronavirus were taking priority for now over his efforts to build on an initial trade agreement with Beijing that long dominated his dealings with the world's second-largest economy.
Looking at the five-day performance, clearly the beginning and the end of the week ate into all the gains that cotton had managed to gather on the back of exceptionally great weekly export sales and hopes of reopening of major economies.
On Monday, Cotton #2 had slipped, essentially, due to better planting numbers. USDA reported cotton planting progressed 2 percentage points on the week to 13%. Texas was up a point to 18%.
The cotton contract for July fell 62 points to settle at 55.01 cents per lb, on Monday.
Between Tuesday and Thursday, cotton July futures zoomed 232 points due to easing of coronavirus restrictions in parts of the United States boosting optimism amongst traders awaiting fresh demand from China.
Market zoomed past 57 cents on Wednesday as Riskier assets got a boost after reports of a potential drug to treat the coronavirus and hopes of an improvement in demand as some economies open up. Reports of several parts in Europe, Australia and New Zealand gradually easing restrictions fulled the upside momentum, along with a weaker dollar index.
While On Thursday, ICE cotton futures on Thursday scaled a near 1-1/2-month peak and lodged their best month since July 2016 on phenomenal sales data from USDA.
USDA’s Export Sales report with cotton data from the week ending April 23 showed 434,818 RBs of cotton sold. That was the second highest total this MY and 200% above the same week last year.
Of the week’s total a huge 422,378 RBs were to China (97% of the total). There were 253,700 RBs shipped that week, which was down 4.9% W/W and brought the MY total to 9.946m RBs.
For the month (April), the contract jumped 12.6%, registering its first monthly gain this year and the best in nearly four years.
However the 149 points fall, in July contract, on Friday took the negative total to 211 points including the Monday’s fall that took a sizeable chunk off the weekly gains.
Worldwide lockdowns and restrictions to curtail the spread of the novel coronavirus have hammered demand and pushed cotton about 20% lower so far this year.
According to CFTC data for the week ended 28th April, managed money slashed their net short position by 5228 contracts. Managed money was 20,262 contracts net short on April 28, close to levels seen 29 weeks back.
Meanwhile, open interest dipped by 4745 contracts at 224,931 contracts.
On the fundamental side, experts see global production staying elevated, while demand is suffering, which will add even more stocks to the global balance sheets next season.
British merchant Plexus Cotton writes in a note, "We wouldn't be surprised to see a global production surplus of 6-8 million bales in the coming season, which would add even more pressure to a saturated market."
On India front, Pandemic restrictions and nationwide lockdown is likely to influence planting preference amid Punjab farmers in favour of cotton. Shortage of labour due to COVID-19 pandemic is the prime reason behind this likelihood.
The Indian state of Punjab can see around 3 lakh acres more under the cotton crop this kharif season against the previous year as farmers could shift from paddy.
Fresh threat of US-China Trade war and slowing global demand may keep prices under pressure in the near term.Support and Resistance for Cotton #2 lies at 54.07 cents and 58.35 cents per lb, respectively.
(Commodities Control Bureau)
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