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Weekly: Downward Pressure Continues In ICE Cotton As Net Shorts Deepen; Experts See Sub-50 Levels If Crisis Persists

5 Apr 2020 7:05 pm
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Mumbai (Commodities Control) – The week ended 3rd April was full of wild swings for ICE cotton, as it marks 4th weekly decline in a row. May cotton shed 35 points by the week’s end.

On Monday and Wednesday, May futures of ICE cotton lost 335 points owing to demand concerns as market continues to suffer at the hands of coronavirus. However last two days of the week along with Tuesday’s positive closing softened cotton’s hard fall.

Cotton contract for May settled up 99 points at 50.98 cents per lb. after recovering from 11-year lows on Thursday. It traded within a range of 49.67 and 51.14 cents a lb. July Cotton closed at 50.98 cents, up 122 points.

While active contract of the fibre rose 158 points at 49.99 cents/lb on Thursday, the biggest one-day percentage gains since Oct. 11. On Tuesday, May ICE cotton settled up 43 points at 51.13 cents per lb. The May-July spread stands to be nil as compared with inverted 5 points last week.

Technically cotton market has barely any reason to rise, as sellers’ grip strengthens for the 4th week in a row. For the week ended 31st March, CFTC showed Cotton speculative traders were 17,274 contracts net short, that’s 2019 contracts more than last week. The open interest stood at 271,053 contracts, up 8195 contracts.

Fundamentally, a myriad of factors led to a roller-coaster ride for cotton this past week.

The factors that managed to take cotton prices higher on the 3 days included better-than-expected factory activity in China and surge in crude oil prices. Even weekly sales and shipments were better than market had anticipated for them to be.

Oil prices surged for a second day on Friday, after U.S. President Donald Trump said Russia and Saudi Arabia will negotiate to end a price war, raising hopes for a new supply deal. Crude oil prices surged over 12%.

While, the weekly exports sales data by the United States Department of Agriculture on Thursday showed exports of 400,800 Running Bales (RB), with 71,800 RB to China and 92,400 RB to Vietnam. The report showed 8.627 million RBs shipped through the first 35 weeks of the MY. That is 20.8% above last year’s pace. Of the total exports reported, 12% were to China, compared to last year when the nation accounted for 10.3% of the total.

On the bearish side, however, the U.S. economy shed 701,000 jobs in March, ending a historic 113 straight months of employment growth as stringent measures to control the novel coronavirus outbreak shuttered businesses and factories, confirming recession is underway.

Cotton market witnessed bearish planting intentions for 2020 from USDA, which forced a limit down and then better than expected sales/shipments number that allowed prices to recover to some extent. U.S. Department of Agriculture estimated all cotton planted area for 2020 at 13.7 million acres, above trade estimate of 12.7 million acres.

Intercontinental Exchange on Thursday said the daily price limit for all Cotton No. 2 futures will be reverted to 3 cents per pound (300 points) above and below the prior day's settlement price.

Cotton Outlook has slashed its estimate of 2019/20 world consumption approximately 9.27M bales to only 106.6M bales.

ICAC has reduced its forecast of aggregate world consumption 6% to 24.6 million tonnes, while the global cotton production estimate for 2019-20 season remains unchanged at 25.9 million tonnes.

Experts aren’t too optimistic about the upside potential as demand destruction and supply chain disruptions will limit any gains. They add that cotton market will slip under 50 cents level, if the crisis drags and the supply chain fails to revive.

Support and Resistance for Cotton #2 lies at 49.13 cents and 52.07 cents per lb, respectively.

(Commodities Control Bureau)

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