Indian Cotton Weekly: Buyers Interest More Towards Premium Variety Cotton

MUMBAI(Commoditiescontrol): The trade activity in the physical market was mostly sluggish throughout the week with more interest towards procuring the premium variety cotton.



The weekly average of the benchmark premium variety cotton in Maharashtra was marginally lower 0.1% to trade at Rs 40,430/candy while the Gujarat S6(30mm) was higher 0.6% to Rs 41,210/candy. Other variety cotton dropped 0.5-0.7% on a weekly basis.

Minor two consecutive session rally on the futures bourse during Feb 20-22, influenced a small jump in spot prices on tight selling. Overall, trade activity was limited in nature in most buyers staying off trading ring.

Interest towards procuring premium variety cotton has kept those prices more or less sideways amid shortage this season due to pink bollworm attack on two major producing states, Maharashtra and Telangana. There were more interested buyers in procuring Gujarat premium variety cotton as buyers were facing difficulties to get the perfect specification of premium variety cotton from Maharashtra and Telangana.

Spinners continued to have enough stock to last them at the most for the next two months, which equals to 50 lakh bales. Further, the textile industry, which continued to loom in liquidity crunch, has not witnessed major sales both domestically and internationally.

Export of textiles and apparel have been falling every months despite the government's efforts to give the segment a boost. Data compiled by the Confederation of Indian Textile Industry (CITI) showed textile and apparel export fell 13 per cent to Rs 186 billion in January, against Rs 215 billion in the corresponding month last year.

The yarn prices have also declined in the past few weeks after cotton prices corrected to near 6 week low early February. Taking the benchmark 60s carded weft of Tirupur market, prices have dropped to near 2 month low, last traded Rs 214-220/per kg. (Price List)

Cotton crop supply during the week observed minor improvement and maintained the daily levels of 1.2-1.3 lakh bales. Total supply during the week(Feb19-23) rose 26.9% to an estimated volume of 6.305 lakh bales compared to 4.97 lakh bales in the prior week(Feb 12-16) but was significantly lower 27.4% compared to same period last year at 8.69 lakh bales. Demonetization delayed supply progress as farmers withheld stocks and offloaded during the first quarter of 2017.

Supply has shown good progress during the past two weeks and was higher compared to the required daily average of 1.1 lakh bales to reach 94% of total crop target by May 31. (Full Report)

However, Holi is scheduled to be celebrated next weekend and trade activity, including arrivals would be sluggish. Hence, arrivals could drop to 1 lakh bales or even lower for the next two weeks.

INDIAN FUTURES MARKET:

The Indian cotton futures snapped losing streak and ended the week on a positive side on addition of fresh long position in benchmark March contract

The benchmark March futures settled at Rs 20,300/bale, on Friday and ended the week higher 2.7%. Open interest soared 3,082 lots over the week, to 7,000 lots(1.75 lakh bales of 170kg).

The soon to expire February futures settled at Rs 20,000/bale, on Friday and ended the week higher 2.4%. Open interest plunged 5,183 lots over the week, to 1,678 lots(0.42 lakh bales of 170kg).

Most market participants squared off their position in the near month February contract and opened a fresh long position in the benchmark March contract.

Technical Ideas(March): Correction was seen earlier of the rise from 18100 to 21390 on C2 chart. The 50% retracement was at 19758 and the low registered last week was 19600.
The close was strong with a positive candle. A bullish candle was formed. Resistance can be at 20627-20670.

On further rise and close above 20670, correction could end and new up move for Wave c could resume which can test back the peak of 21390 at least. Support during the week is at 20143-19817.

Weaker opening and correction first to 20143-19817 can be used for buying with a stop loss of 19600.


Conclusion:

The market seems to be reluctant to be believe that Indian cotton production estimates at 360-370 lakh bales is overstated. Prices are more influenced by the events of the global market.

Hence, keeping the US cotton market in mind, price range until May would be Rs 40,000/candy and Rs 45,000/candy.

The US cotton market on a long term has a tremendous upside potential and a sudden bull charge like the one seen during mid-May, when prices skyrocketed to 88 cents/lb and Indian cotton prices touched 44,000/candy on average.

There is a lot of bull potential in the market going forward.

(By Commoditiescontrol Bureau; +91-22-40015534)