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Weekly: ICE Cotton Ends Sharply Lower On US-China Tariff Hikes, Weak Export Sales

25 Aug 2019 7:10 pm
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MUMBAI (Commoditiesontrol) – Cotton prices on the Intercontinental Exchange ended sharply down during the week as the US-China trade war intensified with retaliatory tariffs between the two countries in addition to the disappointing weekly export sales data.

The most active December cotton contract ended down 3.2% at 58.21 cents per lb. Volumes in the December contract inched up to 15,075 compared with 12,707 a week ago. The March 2020 contract ended down 2.6% to 59.15 cents per lb.

Prices had begun the week on a subdued note amid hard-hitting comments by both Chinese and US trade counterparts. The US linked the negotiations with the Hong Kong protests, giving the trade deal a political hue.

"I would like to see Hong Kong worked out in a very humanitarian fashion...I think it would be very good for the trade deal," US President Donald Trump had said last Sunday.

Later in the week, the Chinese Ministry of Commerce Spokesman Gao Feng is said to have emphasised on the need for fairness in the trade negotiations. “If the U.S. obstinately clings to its own way, China has no choice but to take corresponding countermeasures…The U.S. should change its wrong actions,” Feng was quoted as saying in Mandarin, the CNBC news channel reported.

The market seemed to overlook the fall in the weekly crop ratings that was released on Monday by the US Department of Agriculture.

The latest report for the week to August 18 showed a drop in “good” ratings of the 15 cotton-growing states to 41% from 47% a week ago, while the “excellent” rating too slipped to 8% from 9% the previous week. The “poor” rating saw an increase to 13% from 9%, while the “fair” rating increased marginally to 36% from 34%.

Mid-week, prices recouped some losses on expectations that the weekly export data may lead to some cheer. However, prices went spiralling down by Thursday as the export data disappointed markets.

US Department of Agriculture’s export sales for the week ended Aug 15 showed net sales for 2019-20 stood at 164,000 RB compared with 329,100 RB a week ago. Reductions were reported for Hong Kong (8,600 RB) and China (600 RB).

For 2020-2021, net sales of merely 500 RB were reported. For Pima cotton, net sales reductions of 5,100 RB were recorded led by reductions for China (6,700 RB) and Indonesia (100 RB).

By Friday, prices further tumbled to a one-week low as both the US and China slapped retaliatory tariffs on each other, diminishing hopes of a trade deal in the near future.

China’s Commerce Ministry imposed an additional 5% tariff on US soybeans from September 1, and an additional 10% duty on US wheat, corn and sorghum from December 15. China will also levy an extra 10% tariff on US beef and pork from September 1.

In response, the US raised existing duties on $250 billion Chinese products to 30% from 25%, effective October 1. Tariff rates on another $300 billion in Chinese goods, which were to take effect on September 1, were also hiked to 15% instead of 10% earlier.

Further, US President Donald Trump made scathing remarks about China in a series of tweets, ordering US companies in China to return.

“Our country has lost, stupidly, trillions of dollars with China over many years. They have stolen our Intellectual Property at a rate of hundreds of billions of dollars a year & they want to continue. I won’t let that happen! We don’t need China and, frankly, would be far better off without them…Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.”

Markets across the world took a hit following these moves. Questions also loom over the scheduled trade meeting between the two countries in September.

Data released by the US Commodities Futures Trading Commission data for the week to August 20 showed managed money traders reduced their net short positions by 3,443 thereby narrowing their total net short positions to 41,199. Open interest for the week stood at 275,778, down 15,902 on week.

Brazil’s currency Real continues to weaken Vs the US dollar which will make Brazil origin cotton cheaper and shift the demand from other origin cotton to Brazil origin cotton. The Real ended the week by hitting an 11-month low of 4.13 Friday, making it one of the worst-performing currencies. During the week, the Real slipped nearly 3% against the US dollar.

This week, prices are likely to remain weak weighed by the tariff hikes by the US and China.

Today, the White House clarified a statement made by US President Donald Trump about regretting escalating the tariff war against China made at the Group of Seven countries meet.

“His answer has been greatly misinterpreted. President Trump responded in the affirmative - because he regrets not raising the tariffs higher,” The White House said in a statement.

The weekly crop progress report on Monday could lead to some cues on the crop amid extreme temperatures in Texas.

The first support for the December contract is seen at 57.66 cents, followed by 57.12 cents as the second support.

(Commoditiescontrol Bureau)


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