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Weekly: ICE Cotton stumbles upon pacy crop progress, poor export sales; China COVID lockdown hurts

27 Nov 2022 6:13 pm
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Mumbai, 27 NOV (Commoditiescontrol): ICE cotton futures took another hit on prices as fast paced US crop progress alongside weak exports and demand worries kept building pressure. Price movement continues to reflect cotton's weak fundamental. However, some positives can be drawn from speculators lowering their net short position.

As for the week ended to Nov 26th, there is no respite for natural fibre. Futures ended lower on Friday, snapping their winning streak of last two days, as poor export sales data from the USDA and Chinese COVID induced lockdowns weighed on investor sentiment.

The most-active cotton contract for December closed at 81.34 cents, down 2.60 cent, March 2023 finished at 81.18 cents, minus 2.72 cent and July 2023 settled at 78.64 cents, off 2.50 cent; estimated volume was 12,432 contracts.

For the holiday week, March cotton was off 360 points, up 854 on the month, but minus 925 points for the year.

Wednesday kicked off the beginning of delivery period for spot December cotton. But, thus far no notices have been tendered. It will last through December's expiration of Dec. 7. Tuesday is the last day to exit any spot positions.

There were five delivery notices tendered against the spot December contract. They were issued by Term Commodities. The stoppers were JP Morgan with three, and SG Americas with two.

Interestingly, the December contract managed to hold a small inversion over March, signaling that the US situation remains tight at this point, which is also reflected by the firm basis.

Meanwhile, USDA’s weekly Export Sales report showed cotton sales were 116,428 RBs of net cancelations. Friday's report was a net negative number, with China showing as a huge cancel of 109,000 bales. In addition, allegedly some two-thirds of Beijing is closed for COVID restrictions, further dampening textile demand outlooks.

India’s 7,500 RB purchase was more than offset by reductions from China and Pakistan. Export shipments were 143,698 RBs for the week, bringing the accumulated export to 3.1m RBs. That is 33.5% ahead of last year’s pace.

The Seam reported 2,547 bales of cotton was sold on Nov 22 for 84.71 average gross price. The US Cotton harvest has moved along to 79% complete as of last Sunday, 8% faster than normal. The Cotlook A Index was 4 cents weaker on 11/22 to 98.45 cents/lb. The AWP for the week 77.78 cents/lb. ICE certified stocks were 8,901 bales on Nov 23.

Traders are hoping Black Friday shopping event will see strong gains for apparel products, but most economic analysts are expecting the worst. To that end, today's massive cancellation by China may be part of the handwriting on the demand wall.

Cotton speculators trimmed their net short position by 3,269 contracts to 13,377 in week to Nov. 15, data from the Commodity Futures Trading Commission (CFTC) showed on Friday.

The CFTC spec/hedge report for the week of November 9-15, showed a similar trend as the week before, with specs covering some shorts and adding new longs, while the trade liquidated a large amount of longs and shorts.

Speculators bought 0.36 million bales to reduce their net short to 1.1 million bales, while index funds were also net buyers, increasing their long by 0.29 to 7.17 million bales. The trade took the other side, selling 0.65 million bales to increase its net short to 6.06 million bales.

Most mills around the globe have been running 20 to 50% below their usual pace for the last 4-5 months, and while some are hopeful that things might improve in January, this is more hope than reality at this juncture. Many mills are sitting on 2-3 times their normal yarn and fabric inventories, as consumer demand remains subdued, which weighs on the entire supply chain.

The lack of demand is clearly a problem at the moment. Although, the demand is lousy and mills are not buying much at the moment, we are also seeing a refusal by growers to sell at these low levels, and the strong US basis reflects this. There's a standoff between buyers and sellers, with neither side willing to yield at the moment. This is keeping the market from making a big move to either side.

Sooner or later this stalemate will be broken and unless demand improves considerably over the coming months, the growers will end up holding the short end of the stick. It could still take a while before supply pressure forces their hand, but it seems inevitable in the current environment.

For Monday, support for December Cotton contract is at 79.01 cents and 77.83 cents, with resistance at 82.40 cents and 84.61 cents.

(By Commoditiescontrol Bureau: +91-22-40015505)

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