March closed below the last four weekly lows. Choking smog engulfed northern China and prompted the closing of cotton mills in two provinces.
Selling intensified as cotton futures extended losses below nearby to intermediate support areas Monday, sending March to a finish below the previous four weekly lows.
March lost 147 points to close at 69.57 cents, hitting the session low of 69.53 cents in the fading minutes after touching the high at 71 cents in the first minutes of overnight trading. It finished back below its 50-day moving average at its lowest close since Nov. 14.
The May contract shed 129 points to settle at 70.03 cents, while December 2017 dropped 65 points to close at 68.85 cents.
An inability to hold onto gains over 72 cents in March last week and lack of a stronger market response to healthy U.S. weekly export sales reported on Thursday encouraged long liquidation. The speculative community had built net longs to record highs.
Volume quickened to an estimated 38,075 lots from 16,702 lots the previous session when spreads accounted for 6,352 lots or 38%, EFP 47 lots and EFS 44 lots. Options volume totaled 2,280 calls and 3,655 puts.
Cotton mills in two provinces in China have suspended operations as part of efforts to curb choking air pollution that has engulfed northern areas of the country the past few days.
Some northern cities are reported to have limited the number of cars on roads and temporarily shut down factories to reduce smog during a national “red alert.”
More than 700 companies stopped production in Beijing and traffic police were restricting drivers by monitoring their license plate numbers, The Associated Press reported, citing state media.
Dozens of cities closed schools and took other emergency measures. News websites said the number of children being taken to Beijing hospitals with breathing trouble soared. Emissions from nearby provinces were reported he main cause of the smog choking the capital.
Mills have stopped buying raw cotton and closed in Hebei province and parts of Shandong, both major cotton growing regions, Reuters reported, quoting a government-backed trade website.
Cotton processing in parts of Hebei, one of the nationΆs most polluted provinces, may be affected until the end of December, the report said. Residents have been advised to stay indoors.
China is the worldΆs largest cotton consumer and textile exporter. Its 2016-17 mill use is forecast by USDA at 35.75 million bales, 2% above the previous year and the highest since 2012-13.
China ranked as the second largest foreign buyer of U.S. cotton this season as of Dec. 8, having purchased 1.173 million statistical bales or 14% of export sales, behind only VietnamΆs 1.337 million bales or 16%.
Yet ChinaΆs import demand is forecast at a relatively low 4.5 million bales, down 46% from 8.28 million just two years ago, after Beijing imposed tighter controls to reduce domestic surpluses. Chinese mills have had access to government-held stocks, limiting raw cotton imports.
China has announced that reserve sales will begin again in March in an effort to reduce excess stocks further. ChinaΆs 2016-17 ending stocks are projected at 47.8 million bales, compared with 66.9 million bales just two years ago but still 54% of world stocks and 133.5% of domestic mill use.
Futures open interest fell 1,412 lots Friday to 252,518, with MarchΆs down 1,765 lots 178,305 and MayΆs up 388 lots to 41,403. Cert stocks declined 3,166 bales to 74,099. There were 1,439 newly certified bales and 4,605 bales decertified.
