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DeMote Impact: Bearish Factors That Will Rule Cotton Markets In Coming Months

14 Dec 2016 5:04 pm
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MUMBAI (Commoditiescontrol) – Commodities Control lists down key bearish factors that will rule the cotton markets over the next couple of months and extend their effect even as currency circulation is back to normal.

Overall Compression in Demand
There has been serious compression of total demand in the economy which will plague the textile industry for a long time, even extending over the period after currency circulation back to normal. Reports say that putting back new notes in the economy will take at least 8 months, given the capacity to print that many notes. As of December 7, of the 14.6 lakh crore currency that was kicked out, RBI could infuse, in full capacity, only 2.67 lakh crore new currency in one month. This implies that, in same capacity, it will take more than five months to release all the 14.6 lakh crore currency. The first cut in spending in periods of compression, is on clothing. And there is no seasonal buying on the horizon that can kick up demand for clothing.

The only savior is export. Under such circumstances, cotton will remain under pressure, since its buying and selling is largely cash base. In India, textile fibre mix is still in favour of cotton, opposite to higher share of manmade fibre in global textiles.

Low to Bunching of Arrivals
Post demonetization, cotton arrivals witnessed sharp decline from 1.37 lakh bales arrived on November 8 to just 0.55 lakh bales on November 14. They were almost void in many market for several days. However, supply resume gradually touching a seasonal high of 1.64 lakh bales on December 8, but still short of about a lakh bales per day compared to the arrivals in normal circumstances.

Going ahead, as cash liquidity eases and farmers agreeing for banking transaction, arrivals will surge dramatically due to bunching effect, asserting downwards pressure on prices.

Exports Delayed or Cancelled
As cotton arrivals were sluggish in November, an otherwise a peak month of cotton season, exporters were unable to procure adequate quantity to meet their commitments. This has resulted in delayed shipment to Bangladesh which is committed 20-25 lakh bales and Vietnam 10 lakh bales. Further delay in shipment may force buyers to cancel orders giving benefit to other supplying countries in the short term.

Shut Spinning Mills
Textile industry received a major blow due to cash crunch as many spinning and weaving units had to shut their operation due to lack of labor force coupled with falling demand in end-use sectors. Sources say that 75 per cent of powerlooms in Ichalkaranji, Bhiwandi, Coimbatore are shut for want of cash to pay their workers.

This in turn has drastically reduced demand for yarn from mills which is passed on the cotton markets. Mills will resume slowly which will postpone demand for cotton further when textiles will enter dull season. Meanwhile mills will shift to man-made fibre to produce blended yarns or 100 per cent MMF yarn.

(By Commoditiescontrol Bureau; +91-22-40015522)

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