MUMBAI (Commoditiescontrol) – Indian cotton market recovered from its two weeks bearish sentiment. US Futures was traded in tight range for the third week mostly weighed by the strengthening dollar index. Chinese market ended the week on a firmer note.
A look at how the global market faired through the week.
The cotton market was trending in a tight range of 70-72 cents/lb with soaring dollar index influencing commodity prices in the market.
The March contract settled a tad high by 0.33 percent at 71.04 cents/lb on Friday compared to same day in the previous week at 70.8 cents/lb. The market is stuck within a tight box like range of 70-72 since past 3 weeks and seems to be in no hurry to break that range yet.
The US dollar index made a big move to a 14-year high touching 103.56 after the Fed increased interest rates by 0.25% and hinted at additional hikes in 2017.
Meanwhile, the CFTC report released on December 6 showed speculators increasing their long position to a record of 11.33 million bales (480 lb each), 0.09 million more than in the previous week whereas the traders covered 0.21 million bales to reduce its net short position to 17.85 million bales.
Experts suggest that the upward momentum in the market is limited owing to speculators who continue to secure more long position and the traders on the other hand who were unwilling to cover their short position. However, the larger this trade short gets amid increasing numbers of unfixed on call sales at 10.31 million bales could lead to an uptrend in the market at some point in the future.
On the other hand, USDA weekly export sales data for the week ended December 8 was at 311,700 Running Bales (RB) down by 23 percent compared to 405,200 Running Bales (RB) in the previous week. However was up by 16 percent from the 4 week average. (Full Report)
Chinese market ended the week on a firmer note as the most active May contract settled up 0.50 percent at 15,810 yuan/tonne compared to previous week's 15,730.
Open interest was sharply up by 9 percent at 348,954 lots compared to 318,934 lots last Friday whereas volume was up by 3 percent at 267,232 lots compared to 260,024 lots last Friday. The market is under consolidation and overall sentiment is bullish unless some major sell off takes place.
The Indian cotton futures were more firmer as speculators indulged in securing long position due to sluggishness in supply at the beginning of the week coupled with export demand in the spot market.
The benchmark January contract settled marginally up by 0.8 percent or Rs 150 at Rs.19,130/bale(170kg each) on Friday, December 16, compared to same day in the previous week at Rs 18,980/bale.
However, speculators were buying additional position as open interest was sharply up by 5 percent at 5382 lots on Friday compared to 5147 lots on the same day previous week. Volume increased during the week from 342 lots on Monday to 1475 lots on Tuesday but slowly decreased and fell to 796 lots on Friday.
DOMESTIC SPOT MARKET
Spot cotton in the domestic market was on a tight ranged bullish trend throughout the entire week on account of limited demand amid gradual rise in supply.
Cotton market was marginally down by 1 percent or Rs 100-200/candy across major markets of India compared to last week.
The average price of cotton (30mm) in Maharashtra was marginally down by 0.42 percent from Rs 39,160/candy to Rs 39,038/candy.
Similar trend prevailed in Gujarat with the average price of (Shankar 6 A Grade) cotton pegged at Rs 39,063/candy compared to Rs 39,090/candy last week.
The major participant who factored in to supporting the price in the market despite gradual rise in supply were the exporters as they were purchasing to meet their export commitments. As per sources, around 7 lakh bales of cotton committed to China was shipped whereas around 20 lakh bales towards Vietnam, Bangladesh and Indonesia were still pending with a deadline set to be delivered by the January 14.
Further, official announcement of renewal of import permit by the Department of Plant Protection (DPP) resuming from December 20 onwards also supported the already optimistic sentiment of export. (Full Story)
However, spinning mills in Pakistan were a bit confused on conditions applied towards the import of cotton and ignored the official announcement as they indulged in huge lot deals to replenish their inventories pushing the KCA spot price up Rs 100 to Rs 6,300/maund on Friday.
On the other hand, small and medium mills were purchasing to meet their near term requirements despite on- going gloomy situation in the yarn market since November 8, with trade activity ranging up to only 20 percent.
As per the latest SIMA report, around 535 mills have shut down their operation across the country with 218 mills being in Coimbatore, Tamil Nadu.
Speaking to various yarn traders, the situation is still worst with tentative rates being offered and only needy mills who were running their operation on bank loans were purchasing in small lots to meet their near term requirement. This situation may likely last the entire month of December.
The story on the supply side is still much better as the sentiment is optimistic and cotton arrival is likely to increase further pressuring cotton price down, in the midst of limited demand, capping any major gains in the market.
Cotton arrival at the beginning of the week was lower as the country received only 1.41 lakh bales on Tuesday. However, the supply picked up pace and reached back to the 1.60 lakh bales level on Friday.
The total arrival during the week (Dec 13-16) was around 6.21 lakh bales which were lower compared to nearly 8 lakh bales arriving last week (Dec 5-9).
At present, Indian cotton price is competitive in the market as it was trending between 72-74 cents/lb more or less similar to last week, just below the 75 cents/lb mark. The Gujarat Shankar 6 30MM cotton price was trending around 73.8 cents/lb as on December 16, 2016. Whereas, the price of US cotton traded on the Intercontinental Commodities Exchange (ICE) futures was around 71.04 cents/lb and the KCA spot price of Pakistan was 73.10 cents/lb The Brazil cotton index was 80.54 cents/lb and the Cotlook Index A at 80.45 cents/lb.
On the side note, Rupee rebounded against greenback by 7 paise to settle higher at 67.77 on Friday. The local currency was witnessed a sharp decline of 40 paise to settle at 67.83 on Thursday influenced by stronger dollar which registered a 14 year high on Thursday touching 103.56 on the dollar index.
The dollar index, which measures the greenback against a basket of six major rivals, was last at 102.900 on Friday, not far from Thursday's 14-year high of 103.560 but down 0.12 percent on the day.
Demand from major exporters and hand to mouth purchases by small and medium mills may support price but the gains may be limited amid gradually rising supply.
(By Commoditiescontrol Bureau; +91-22-40015534)