India Weekly: Cotton Edges Lower; May Trade Range-Bound This Week

MUMBAI (Commoditiescontrol) – Cotton prices continued to exhibit bearish tone in the domestic market during the week ended September 28 mainly due to subdued cues from international market, slow domestic demand and ahead of new crop harvest.

New cotton crop arrival has already started in North Indian markets of Punjab, Haryana and Rajasthan and is gradually increasing. However heavy rainfall in Punjab and Haryana on Sept 22 & 23 caused some significant losses to cotton crop in terms of quality. The crop was hurt mainly in rain affected regions, whereas crop is in very good conditions elsewhere. Arrivals in North India on last Saturday rose to 13,000 bales (170kg).

Millers in North India during the last week mostly kept themselves sidelines from any major buying as the arrivals coming in the markets are reported to have contain higher, around 11-13% of moisture content. However, the dry and hot weather after rainfall will be beneficial for late sown crop.

Cotton harvest in other parts like Gujarat, Maharashtra, Madhya Pradesh, Telangana, Karnataka and Andhra Pradesh will start with decent pace by mid-October and likely to peak by next month onwards as season is late this year due to delayed planting in these states.

Many experts are still avoiding to forecast crop numbers for 2018-19 (Oct-Sept) mainly due to expectations of lower crop in Gujarat and amid dry weather conditions in key producing belts. The intensity of loss is difficult to predict.

Meanwhile, gujarat agriculture department in its first advance estimate has cut down production and pegged 2018-19 crop down by 13.34% at 88.28 lakh bales versus 101.87 lakh bales a year ago.

Indian government too estimated country’s cotton crop lower at 324.83 lakh bales from 348.88 lakh bales in 2017-18. The government’s target was at 355 lakh bales.

Now weather is mostly clear in most parts of the country and according to IMD, conditions are favourable for further withdrawal of southwest monsoon from remaining parts of Rajasthan; some parts of Punjab, Haryana, including (Delhi), Uttar Pradesh, Madhya Pradesh and some parts of Gujarat and North Arabian sea during next 24 hours.

Demand
A majority of cotton buyers are mostly on the sideline mainly due to lack of supply amid thin stocks and expectations of some good correction ahead in the wake of falling prices in the international market.

The new Kapas price in North India have just dropped below minimum support price level. The MSP of cotton for medium staple is Rs 5,150/100kg and for long staple at Rs 5,450.

The bearish trend in U.S. market amid escalating trade war has raised concerns among industry players that they may face stiff competition in the international market against the backdrop of declining global prices.

The most-active December cotton is flirting nearly 76 cents per pound, whereas new cotton in North India ex-mill rate ruled between 74-75 cents per pound (calculated at INR 72.57 Vs dollar).

U.S. cotton is considered better than Indian fibre and fetches premium. Any more correction in prices in the international market will certainly make the competition more tough going forward not only for cotton exporters, but also for its derivatives product.

However one thing that is likely to favour local prices is good domestic demand from mills with depleting stocks with them. This may prompt them to replenish cotton for inventory to meet future demand.

There are negative news flow like liquidity crunch, slow demand in cotton and cotton yarn since last few weeks, falling prices in the global markets, but there are positive side of news as well like expectations of good import demand from China after escalation in trade war, rising crude oil prices and depreciation in INR.

CONCLUSION

Domestic cotton prices are likely to follow the U.S. market very closely. Indian cotton prices have not reacted in line with ICE cotton mainly due to tight balance sheet, but as harvest pressure is all set to increase ahead there are some good possibility of decent correction in prices. The outlook of domestic crop for 2018-19 is still not clear and any drop in production from last year’s level may provide good strength to domestic market. So overall domestic cotton market is likely to trade range-bound with volatility.

TECHNICAL IDEAS – MCX COTTON OCTOBER - Exit Long On The Rise

Exit long and sell on rise from 21840-22337 with a stop loss of 22560.

Resistance will be at 22053-22337.

Lower range can be 21557-20777.



(By Commoditiescontrol Bureau; +91-22-40015533)