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Weekly: Cotton#2 Posts Fourth Straight Weekly Rise amid Chinese Demand, Stimulus Hopes; Experts Watch Out for Sell Side Liquidity

24 Jan 2021 6:30 pm
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Mumbai (Commodities Control) – NY cotton managed to end 41 points higher during the truncated week ending 22nd January, as Mar-May spread rose to 110 points. It is to be noted that ICE March cotton contract peaked at 83.03 cents per lb this week, gathering over 140 points until Thursday, before paring majority gains over the weekend.

The ICE Mar cotton contract gained 93 points last week and the active contract had touched 82 cents level.


During the latest week, Cotton prices fell more than 1% on Friday as a firmer dollar and profit taking precipitated a pullback from an over two-year peak scaled in the previous session.


The cotton contract for Mar 21 closed at 81.56 cents, down 101 points and May 21 Cotton closed at 82.66 cents, down 84 points. July 21 Cotton closed at 83.56 cents, down 74 points and Dec 21 Cotton closed at 78.47 cents, down 57 points.


It is to be noted that Monday was a federal holiday. Meanwhile,It was a one-sided northward rally between Tuesday and Thursday before cotton futures dropped on Friday.


Chinese demand continues to be one of the main drivers behind this rally. China imported 1.6 million statistical bales of raw cotton in December, which was the highest monthly amount since 2013, and China continues to absorb a lot of cotton yarn from the Indian subcontinent as well.


Cotton and yarn imports by China are estimated to reach around 22 million statistical bales this season, but this number could go up if the Xinjiang issue forces Chinese manufacturers to source more foreign fibers.


Having said so, profitbooking by some speculators and the firm U.S dollar weighed on Cotton futures on Friday.


Sentiment toward riskier assets was subdued as global equity benchmarks slipped from record highs on concerns that newly inaugurated U.S. President Joe Biden's stimulus plan may face Republican opposition.


Biden has proposed a $1.9 trillion coronavirus relief plan, though some Republicans have expressed concerns over the amount.


Not to forget, in its weekly export sales report, the U.S. Department of Agriculture showed that net sales of 292,400 running bales (RB) for 2020/2021 were down 10% from the previous week, while exports of 322,400 RB were up 17%.


Meanwhile, the weekly Commitment of Traders report showed cotton specs reduced their net long by 1,849 contracts and Open interest rose by 3,426 contracts to 291,506 contracts for the week ended 19th january. Having said so, speculative traders were still 67,853 contracts long.


The greater part of the strength in current rally lies with the liquidity flooding the World markets and there’s more to come as the Governments are trying to support their dwindling economies.


Experts are of the opinion that so long as China continues to shop for cotton and yarn at the current pace and financial markets remain in the state of euphoria, this bull run is far from over.


In the absence of sell-side liquidity, this market will only push higher.


Immediate support and resistance for Cotton #2 lies at 80.13 cents and 83.31 cents per lb respectively.


       
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