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Weekly: ICE Cotton Ends Lower on U.S-China Trade Concerns, Weak Export Data; Experts See Prices Mixed-to-Weak

19 Jul 2020 7:48 pm
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Mumbai (Commodities Control) – NY Cotton gave up 237 points for the week ended 17th July. The most active December futures lost 3.7% during 13th-17th July. This weekly fall was registered after Cotton #2 rallied over 2% for the week ended 10th July.

December Contract on ICE gave 218 points during the first three days of the week pressured by demand concerns due Sino-U.S trade concerns, rain forecast over U.S cotton producing belt and its planting progress.


Some technical buying came around Thursday’s settlement. Market was relieved a bit after China said the Phase 1 trade agreement with the United States can still be implemented despite escalating tensions between the two countries.


It was interesting that the market did recover on Thursday in spite of bearish exports sales. The U.S. Department of Agriculture's (USDA) weekly export sales report showed a net sales reduction of 17,500 running bales and exports of 311,700 running bales in the week to July 9.


The USDA’s weekly Export Sales report showed net reductions for old crop cotton bookings. Net sales of 26,500 RBs to Vietnam were offset by reductions of 38,600 RBs to China. Reductions are not unusual here, with only three weeks left in the marketing year to get the cotton shipped. New crop sales, led by China, were 29,100 RBs.


On Friday, Cotton futures closed the week down 44 to 87 points, as souring U.S.-China relations and rising coronavirus infections fueled worries about demand for the natural fiber.


Cotton contracts for December fell 60 points to settle at 61.94 cents per lb.October Cotton closed at 62.01 cents, down 87 points.March 21 Cotton closed at 62.63 cents, down 56 points. Dec’20-Mar’21 spread stood at 69 points vs 52 points in the prior week.


Technically the cotton market is well-supported. The Commitment of Traders report showed cotton speculators added 5,164 new longs, and closed 3,133 shorts for a net long position of 29,817 contracts. The open interest for the week ended 14th July stood at 210,440 contracts, up 6654 contracts.

Amid all the cotton markets data, the market will keenly be watching the ongoing diplomatic unrest between the United States and China.

The Trump administration is considering banning travel to the United States by all members of the Chinese Communist Party and their families, a person familiar with the matter said on Thursday.

In response, Beijing on Friday said the travel ban, if imposed, would be absurd.

The prolonged tussle between the U.S., the largest exporter of the natural fiber, and China, the biggest consumer, could further weigh on cotton prices as the cotton market reels under the impact of the coronavirus pandemic.


However analysts aren't too worried about a crash fall in cotton prices yet.


"Most of the negative factors like the virus, relations with China and weak economic outlook have already been priced into the market," said Bailey Thomen, cotton risk management associate with INTL FCStone, adding that as long as China fulfills the Phase 1 agreement cotton will hold above 60 cents.


The market may not be as aggressively bullish on fibre, but analysts believe 60 cent to be secured level for now.


"The weather rally took cotton to about 65 cents but now investors see that it's not as drastic as it seemed, also Trump's comments on China are negative for the market," said Jon Marcus, president of Lakefront Futures and Options brokerage in Chicago. Although, he added, that the contract is not expected to fall below 60 cents.


Having said so, another dominant fundamental for the market remains the weather. Currently, Texas and other cotton producing areas are looking at forecasts that carry well above normal temperatures and well below opportunities for normal rainfall.


To that end, traders are expecting the Texas crop to sink further in USDA’s crop ratings data that will be released Monday afternoon. At last count, the Texas crop was rated 41% very poor to poor.


Plexus cotton is cautiously bearish, as it sees the market drifting lower in low volume,approaching trendline support at around 61 cents.


Overseas market will keep an eye on China buying, weather issues and the Federal Reserve for the monetary developments.


Looking at the Indian side of the story - As per GoI until 17th July, area under Cotton has reached 113.01 lakh ha area against 96.35 lakh ha for the corresponding period last year.


Although the demand picture continues to be foggy. According to a report by ICRA Ratings, revenue of Indian cotton spinners is likely to decline by 25-30% Y/Y in 2020-21 due to COVID-19 pandemic-led disruptions in manufacturing activities and weakness in demand in global as well as domestic markets.


This will further add to the woes of the sector which saw an estimated 5-7% decline in revenue and 200-250 basis points (bps) correction in operating margins in FY20, it said.


In the major cotton markets of India, prices were generally steady due to some mill buying at lower levels.


Going forward, in the overseas market, Jack Scoville of Price Futures Group sees trends in Cotton are mixed to down with immediate support at 61.10 cents and resistance at 63.20 cents per lb for December futures.


       
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