CZCE Cotton #1 futures registered weekly gains in the past week tracking global cotton markets. From a level of 14,264 CNY on 26th March, May futures have risen to 14,940 CNY recently. It is to be noted that CZCE Cotton #1 dropped from the highs of 17,083 CNY on 26th February to 14,264 CNY on 26th March.
Having said so, Cotton yarn markets have been aping cotton market trends and showing recovery signals. CZCE cotton yarn May’ 21 futures witnessed a northward rally from 21,049 CNY on 26th March 2021 to 22,390 Yuan on 9th April.
It is to be noted that from levels of 19,900 Yuan/Tonne in late-September last year to 25,223 Yuan during early March 2021-- rise of over 26% in a span of five months. The rally has resumed.
Cotton Yarn Rally in Vicinity?
Charts indicate that Cotton Yarn futures (CZCE) have moved higher from the key support zone of 21,500 Yuan and a near-term pullback seems more likely and prices may advance towards March ‘21 high (25,000).
Spread analysis on chart points towards the reference range for Cotton Yarn (CZCE) vs. Cotton No. 1 (CZCE) ratio spread that remains well-defined between 1.40x – 1.60x,in the last 4 years. The spread has recently turned higher from the lower threshold (current reading near 1.46x). Based on historical trends, there is decent potential for the spread to expand from here. Our analysts believe Cotton Yarn (CZCE) may outperform Cotton No. 1 (CZCE). So on a relative trade basis, we advise to Buy Cotton Yarn (CZCE) & Sell Cotton No. 1 (CZCE).
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