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Weekly: ICE Cotton posts best week in 4 months; need some fundamental check to capitalise

1 Apr 2023 7:21 pm
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Mumbai, 31 MAR (Commoditiescontrol): Cotton continued their streak of success for the second consecutive week ended March 31, aided by some short covering, the dollar giving up some of its gains versus basket of currencies, crude oil limping back. However, a closer check provides some worrying signs at fundamental levels that needs to shape-in for sustaining gains. Fear of the global economy falling into recession continues to paint dull demand scenarios amid evenly balanced supplies. It will be a challenging task for natural fiber to sustain recent gains.

On Friday, ICE Cotton futures prices eased on Friday, losing nearly 1% due to the uptick in the U.S. dollar and better than expected U.S. plantings estimates from the U.S. Department of Agriculture.

ICE Cotton contracts for May 2023 finished at 82.78 cents, down 0.72 cent July settled at 83.10 cents, down 0.77 cent and December 2023, ended at 83.42 cents, 0.46 cent lower; estimated volume was 39,569 contracts.

For the week, May cotton was still a 6.24 cents per pound higher and Dec was a marginally higher. During the month of March, May traded within a 10.55 cent range and ended at a 1.25 cent loss.

The cotton complex continued to garner support from the external factors. The firm trend in crude oil price, resulting from the lower stockpiles and a halt to exports from Iraq's Kurdistan region, is one such key element. Producers have shut or reduced output at several oilfields in the Kurdistan region of northern Iraq following a halt to the northern export pipeline by Turkey. Crude oil prices are currently sitting at $75 mark, is positively influencing natural fiber prices. Higher oil prices make man-made polyester costly.

Fundamental factors are still tentative in nature. Talking about the U.S. plantation activity, the NASS’s Prospective Plantings report shows Cotton area at 11.256m acres. That is down from 13.76m last year, but 350,000 above the Feb projection. Traders were looking for 11 million flat going into the report, so this was regarded as slightly bearish.

USDA's weekly export sales highlighted fewer sales, but a bigger uptick in shipments of 341,000 running bales (RB), up 25% from the previous week and 31% from the prior 4-week average. The destinations were primarily to Vietnam at 97,200 RB, and China 67,200 RB.

USDA’s weekly Cotton Market Review showed 27,608 bales were sold for the week at an average price of 78.66. The season’s total sales were 521,745 bales. The Seam reported 9,302 bales were sold on March 30 for an average gross price of 77.71 cents.

The Cotlook A Index was another 20 points higher on March 30 to 96.70 cents/lb. USDA’s FSA raised their AWP for cotton by 151 points to 67.84 cents/lb.

CFTC's Commitment of Traders (CoT) data showed the managed money firms were 23,475 contracts net short in cotton as of March 28. That was a 780 contract lighter net short through the week via short covering. The commercials added 1,800 new shorts for a 17,358 contract net short as of the Tuesday's settle.

Analysts attributed the recent cotton price gains to outside factors and viewed it as a technical pullback as too shorts forced covering some of them. Risky assets succeeded in clinching win against the backdrop of the U.S. banking crisis and the lingering interest rate hike scenarios. With inflation rate showing signs of cooling off, the markets can expect the Federal Reserve to tone down its hawkish statement and the rate hike trajectory. It will be interesting to see whether, the Fed obliges or stays steadfast on its hawkish tone. Some check at fundamental factors is always recommended to balance the view.

For Monday, support for the July Cotton contract is at 82.13 cents and 81.48 cents, with resistance at 83.56 cents and 84.34 cents.

(By Commoditiescontrol Bureau: 09820130172)

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