Mumbai (Commodities Control) – Amid a volatile trading session, cotton managed to push it limits to near 60 cents mark on ICE cotton futures. The rise was primarily aided by Chinese purchases, short covering and firm crude prices.
Spread analysis of cotton yarn vs cotton indicates the same.
The chart indicates that since mid-2017, the premium of Cotton Yarn (ZCE) vs. Cotton (ZCE) has remained within a 1.30x – 1.60 x ranges (30.00% - 60.00% premium). Each time the spread widens and reached close to 1.60 x ranges, there’s been a downward correction. This is indicated in the chart thrice in 2018.
Whilst in May 2019, the spread between yarn and cotton fell under 1.20x range leading to sharp spike, thereafter. This spike peaked out near 1.80x range towards November 2019. Since then the spread has been within the threshold range.
At the moment, the spread rate has turned lower from the upper threshold (with a current reading near 1.59x). Based on historical trends, there’s a good downside potential for the spread to contract.
This means that Cotton Yarn rates will likely underperform, hereon, as compared with Cotton (ZCE).
The spread analysis advises sell in cotton yarn, while buying in recommended in cotton.
The standalone cotton yarn chart points at the losing momentum in the ongoing bounce near CNY 19,000.From chart’s perspective, the long-term trend remains bearish. A decline of 8.7% is indicative from the current levels, which means yarn Prices may decline towards CNY 17,000 in near term.
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Neha Anand
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