March futures gave up ground this week to settle at 69.05, down over 100 points.
The Coronavirus has continued to cause global concern, with now over 200 deaths, all reported in China. The virus has led to the suspension of many flights in and out of the country, and various cities are on lockdown there as the government looks to contain the virus. When China has a cold the world markets sneeze, and this couldn’t be more relevant in this case. As a result, cotton futures have come off due to escalating fears of the virus.
The USDA report was encouraging with marketing high sales and shipments, even more positive was the appearance of China who bought just over 100k bales of US. Reports suggest that Chinese state companies have continued to buy US high grades during the last two weeks, but further purchases may be restricted by the limited availability of these qualities.
It has been a very quiet week on the demand side. Bangladesh has been enquiring and bidding on WAF but at levels that are not attractive to the merchant. They have been buying more on a hand to mouth basis this year and so their forward requirements are still to be filled. In Pakistan, where they still have about 1 million bales to buy to satisfy their domestic shortfall, they continue to look for very cheap priced offers and in particular US recaps have been selling well. Indian cotton remains very cheap, and seems to be taking the market share for sales into Bangladesh for the time being.
Origin wise, Brazil still has around 500k mt left to sell of 19 crop which will be sold in recaps and as 31-4-36. In West Africa we feel that although strong sales have been made since the start of the year, there is still around 40% left to sell which would equate to around 450k mt. With the US high grades looking to be in shorter supply and little high grades coming from elsewhere we still believe the high grade cotton could be in strong demand later in the year.
The Coronavirus has rocked markets around the world and cotton has not escaped the fallout. Before its emergence a steady return of demand and a stable market were in evidence, without the large daily fluctuations that we see at present. Considerable uncertainty remains with regard to the virus and the longer terms effects on international travel and global stock markets. Immediate attention will be focused on the re-opening of Chinese markets which have been closed since the start of the New Year holidays – many pundits are predicting a fall of over 5 percent in share values, while the Chinese government is trying to ensure that panic does not ensue, in order to minimize any run on the markets. Time will tell.
Source: Mambo