An up and down week on the futures with March eventually settling at 70.03 c/lb, down just 19 points.
The outbreak of coronavirus in China has so far lead to the death of 25 people and caused panic in China and globally. This unexpected event has weighed on commodities over the week, with cotton taking the biggest hit. The Chinese have been praised for their reaction so far by closing two major cities in an effort to contain the virus. China and Vietnam is now on a week’s holiday for Chinese New Year but the virus will be watched closely by traders.
Indian Shankar 6 has become even cheaper over the week, selling at around 75 c/lb CNF, grabbing the attention of the mills. India has so far reported sales of 2.5 million bales and the CCI have bought close to 4 million. With cotton being bought at a steady rate in India the balance sheet is tightening, heightening the possibility of imports into India in the coming months. This will however depend on the CCI and their decision as to when to sell their stocks.
Other than India, business has been reported on other origins, WAF S types to Pakistan and Bangladesh sold at around 80 c/lb. Brazil Midding 1.5/32 sold to Bangladesh at 79 c/lb. Mills seem to be set on a maximum price of 79 to 80 c/lb for the higher grades, a function of where the yarn market is allowing them to make sales.
The US export report is released today and general expectations are that it should be positive with sales and shipments similar to last week. Looking forward, we might expect to see sales of US cotton to China.
It also remains that there is a large supply of cotton still in the pipeline, however this is not necessarily top grade cotton, which does seem to be in shorter supply. The US, Australian, and Indian are all reporting issues on quality so the higher quality, higher staple cotton should receive a premium, with the most abundant supply coming in West Africa. Additionally, Brazil high grades appear well sold thereby reducing the availability of high grades going forward.
The sharp rise in US futures over the last month seems to have taken a breather for now. There is resistance at the 72 c/lb level and also at the 68 c/lb level, so a trading range at these levels in the foreseeable future seems likely. Possible catalysts from outside markets could be a worsening of the Coronavirus in China or large purchases of US cotton by China.
Source: Mambo