Mumbai, 29 OCT (Commoditiescontrol): ICE cotton futures continue to fall apart in the wake of falling demand and there are very few factors available currently to arrest the slide in natural fibre price.
Last Friday, cotton market was sharply lower to limit down Friday, as traders fear even more slowing of Chinese demand. ICE December futures traded limit down as they headed for their seventh straight week of decline, reeling under pressure from a rising dollar and stunted demand amid worries of a wider economic slowdown.
ICE cotton contract for December closed at 72.11 cents, down 3.00 cents, March 2023 finished at 72.07 cents, down 2.74 cents and July 2023 settled at 72.36 cents, 1.42 cents lower; estimated volume was 40,983 contracts.
December contract was down almost 8.9% on the week, set to log its worst week in eight. As this month nearly concludes, December cotton is off 7.02 cents for the week, down 13.23 cents on the month, and down 20.54 cents for the year.
We have got all the ingredients to make up for a perfect bearish recipe. There is fundamentally a lack of demand that is coming directly from the downstream sector, analysts said.
The dollar index, which tracks the greenback against six major peers, was up 0.3%, making U.S. cotton more expensive for overseas buyers.
Cotton prices were also pressured by speculators switching to a net short position. Interestingly, futures open interest has increased considerably in recent months, rising from 172,500 contracts on July 7 to 247,400 contracts, an increase of over 43%. Typically we would expect a drop in open interest during a market decline, as positions are being liquidated. While speculative longs were indeed in liquidation mode, trade longs have stepped in and taken over these longs, and we saw a similar ‘swap’ on the short side.
Speculators increased their net short position in cotton futures on ICE U.S. to 5,689 contracts, adding 4,915 in the week to October 18, data from the Commodity Futures Trading Commission (CFTC) showed last week.
For the current week, CFTC’s Commitment of Traders report showed the funds added 6,800 new shorts and closed 1,900 longs through the week that ended October 25. That left the group 13,280 contracts net long – their weakest since July 2020. Commercial cotton traders reduced exposure through the week weakening their net short by 8,300 contracts to 32,346 – their lowest since March 2020.
The latest CFTC spec/hedge report for the week of October 12-18, during which December moved from a high of 87.17 to a low of 81.78 cents, showed that speculators are now 0.37 million bales net short, while the trade reduced its net short (both by buying new longs and covering shorts) to 6.12 million bales. Index funds now own the sole net long at 6.49 million bales.
Indicative of weak trader sentiment is, the U.S. Department of Agriculture's weekly export sales report. The report released on Thursday showed net sales of 68,400 running bales (RB) for 2022/2023, down from 84,500 RB in the previous week, with reductions primarily for China. In fact, China did not show as a buyer of U.S. cotton, but canceled close to 50,000 bales. Currently, the government is administrating another restrictive COVID-19 shutdown. Thus far some 28 cities, over 200 million people, representing one-fourth of her GDP are in "isolation limbo."
Total commitments for the current marketing year are at 8.75 million statistical bales, whereof 2.65 million have so far been exported. This compares to 8.85 million bales in sales and 2.05 million shipped a year ago.
USDA’s weekly Cotton Market Review showed 1,734 bales were sold at spot this week for an average cash price of 78.17 cents/lb.
The Cotlook A index for October 27 was another 70 points lower to 95.25 cents/lb. USDA’s AWP was 4.81 cents weaker to 68.95 cents/lb for the week.
As mentioned in earlier reports, the cotton market is technically "very oversold". Therefore, some traders see any upswing as a "bear market rally" and may be willing sellers. However, with harvest soon approaching the 50%-mark, other traders may be less inclined to sell the market "down-in-the-hole", analysts informed.
For Monday, support for December Cotton contract is at 71.02 cents and 69.94 cents, with resistance at 74.28 cents and 76.46 cents.
The outlook for an improvement in demand is not rosy, as economic news is getting worse. The Global PMI (Purchasing Managers Index) is now in contraction territory, with the Composite Output PMI in the US (47.3), China (48.5) and the Eurozone (47.1) all showing lower economic activity.
Analysts believe, with central banks still playing the hawkish card, this negative feedback loop we are seeing in nearly all assets will only get worse and it is still anyone’s guess as to when ‘enough is enough’ and we’ll see a return to a more accommodative environment. Policy makers have become both arsonist and firefighter, creating ever increasing boom-and-bust cycles with their misguided moves.
The lack of demand remains the overriding factor in the cotton market and there is still no improvement in sight. The USDA still needs to adjust its global mill use estimate to reality, which means cutting it by possibly as many as 8-10 million bales from the current 115.6 million bales.
Although we are now technically in a bear market, we could still see some rallies here and there. The July to December period is the longest between delivery months (not counting October, which has virtually no open interest), and this allows for speculation to go unchecked. However, the upcoming Dec notice period will once again force cash and futures prices to converge.
Hence, December futures are expected to hold up relatively well, while back months might come under more pressure once the crop has moved in and unsold supply builds. For the market to reverse out of this bear market, we need a switch to more accommodative monetary conditions, a weaker dollar, rebounding economies and reduced geopolitical risk.
(By Commoditiescontrol Bureau: +91-22-40015505)
0 Comments 
Post Comment 
