Mumbai, 19 NOV (Commoditiescontrol): ICE cotton futures pulled back off the recent rally on faster than normal U.S. cotton crop harvest progress while sluggish U.S. export sales and Covid-19 induced lockdown in China stoke fears of demand.
ICE Cotton futures hit a two-week low earlier on Friday, before settling their first weekly decline in three, after top consumer China revised its COVID restrictions and poor U.S. sales data dented demand outlook for the natural fiber.
The most-active cotton contract for March finished at 83.78 cents, down 1.50 cents and July 2023 settled at 82.02 cents, 1.27 cents lower, December closed at 85.16 cents, down 1.88 cents; estimated volume was 37,195 contracts.
For the week, December cotton is down 3.04 cents or 3.45%, for the month it is up 13.16 cents, but for the year it is off some 3.04 cents.
Fear of higher interest rates by the Federal Reserve, and daily increases in the COVID-19 infections rate, pushed prices down.
Adding further pressure to cotton prices, oil was on track for a second weekly decline, pressured by concern about weakening demand in China and further increases to U.S. interest rates. Lower oil prices make polyester, a substitute for cotton, less expensive.
Thursday's U.S. exports sales data was discouraging. It lagged markets expectations. Latest lockdown imposed by China has dented natural fibres prospect.
U.S. Department of Agriculture's weekly export sales report showed net sales of 25,100 running bales (RB) for 2022/2023, significantly lower from 145,800 RB in the previous week.
Shipments were reported at 182,950 RB. Thus far in the MY, 8.8 million RB has been sold or shipped, which is still 75% of the USDA forecast, compared to the normal 66% pace. Last year we had 9.0 million statistical bales in sales and 2.2 million bales shipped.
Chinese October cotton imports were more than double last year with 130,000 MT brought in. Their YTD cotton imports are still trailing 2021 by 17% at 1.59 MMT.
USDA’s weekly Cotton Market Review showed 12,604 bales were sold at spot for the week with an 86.12 c/lb average price. MYTD spot sales total 57,375 bales compared to 316,548 during the same time last year.
Beijing's biggest district urged people to stay home during the weekend as China further fine-tuned its COVID rules.
The Cotlook A Index was back down by 35 points to 105.40 cents/l on Nov 17. The updated AWP for the week 77.78 cents/lb, from is 76.74 cents/lb.
CFTC’s weekly CoT data had the funds covering 2,900 shorts through the week that ended Nov 15. That left the managed money group 17,660 contracts net long at the settle. Commercials closed over 20% of their open interest during the week.
Both commercial longs and shorts were closed, for a net 5,777 contract stronger net short of 42,170 contracts. December cotton deliveries begin with FND next Wednesday.
The latest available CFTC spec/hedge report for the week of October 19-25, during which December traded between 83.69 to 75.73 cents, showed that speculators were the driving force, adding a large amount of new shorts, while the trade was still a buyer into weakness. Speculators sold 0.95 million bales to increase their net short to 1.32 million bales, which is 12.77 million bales less than what we had in October 2021, when specs were sitting on a 11.45 million net long position.
The trade continued to be a steady buyer last week, cutting its net short by 0.94 to just 5.18 million bales, while index funds remained the only net long at 6.45 million bales.
As pointed out last week, speculators are often able to push the market around between delivery periods, but the upcoming Dec notice period serves as reality check, where cash and futures prices converge.
With December delivery round the corner, speculators started to cover shorts on Tuesday. This pushed futures limit up, then synthetic options moved to double limit up, which prompted the exchange to halt options trading. The last time that happened was in October 2010! The synthetic close for December was put at 79.19 cents on Tuesday, or about 9 cents above the previous day’s low.
This kind of price action was enough to scare any remaining shorts, triggering panic-like short covering and some opportunistic new momentum buying as well, which locked the market limit up again on Wednesday and Thursday. Fortunately the market didn’t lock up right away, which allowed for large volumes to be traded. There is nothing worse than being trapped in an illiquid market.
Analyst expect the market to transition into a sideways range, as selling pressure from speculators is gone, since they won’t short the market again anytime soon after this debacle. There isn’t much natural selling at this point, but this will change once supplies increase. Rather than expecting much selling pressure, we will likely see the market ease off due to a vacuum of buying once the short-covering is over.
Next week's calendar will obviously be different. On Monday, USDA will issue its crop progress report. The 2022 harvest may be nearing 80% complete. Then spot December cotton enters delivery on Wednesday, with Tuesday the last opportunity for traders to exit ahead. Of course, ICE Cotton will not trade Thursday, Thanksgiving Day, but will trade an abbreviated session on Friday.
For Monday, support for December Cotton contract is at 82.19 cents and 80.60 cents, with resistance at 85.33 cents and 86.88 cents.
(By Commoditiescontrol Bureau: +91-22-40015505)