MUMBAI (Commoditiescontrol) – Cotton S-6 variety (29mm-3.7-3.8 micronaire) at the benchmark Gujarat market showed some respite during the week ended 24 December supported by good buying by mills, traders and exporters after recent weakness.
However, U.S Futures witnessed profit booking after trading in a tight range for couple of weeks. Volume on ICE was light ahead of Christmas and New Year holidays. Meanwhile, China market turned bearish as benchmark cotton futures on ZCE Exchange slipped 4 percent as issue with regards to logistic were resolved followed by cotton mills in two provinces suspending production as part of measures to curb smog that blanketed the north part of China in the past few days, triggering official pollution alerts.
Let’s first look at how the global market faired throughout the week.
US MARKET:
The cotton market was trading the tight range of 69.32-71. cents/lb with soaring dollar index influencing the commodity market.
The March contract settled 1.64 percent at 69.87 cents/lb on Friday compared to same day in the previous week at 71.04 cents/lb.
The US dollar index moved to a new 14-year high touching 103.65 and settling at 103.01 after the Fed raised interest rates by 0.25% and hinted at additional hikes going in to 2017.
Meanwhile, the CFTC report released on December 23 showed speculators cutting their bullish position in cotton contracts from a record high in the week to December 20. CFTC data showed that speculators reversed their bullish stance for the first time in five weeks, reducing it by 9,635 lots to 94,010 lots.
On the other hand, export data from the U.S. Department of Agriculture showed net upland sales of 276,700 running bales of cotton for the week ended December 15, down 11 percent from the previous week.
CHINA MARKET:
Chinese market ended the week on a negative note as the most active May settled sharply lower by 4.36 percent, or 690 yuan at 15,120 yuan per tonne. The weakness in prices is attributed to easing concern about transportation amid clear weather, which earlier was threatening transportation. Further, demand for cotton has been affected by production shutdown in two provinces in China have suspended output as part of measures to curb smog that blanketed the northern part in the past few days. Also, business activity seems contracted ahead of Christmas and New Year eve.
Open interest and volume, both dropped significantly during the week from last week. Total open interest during the week fell 8 percent, while volume falling sharply by 20 percent.
INDIAN FUTURES MARKET:
Indian cotton futures was on a firm trend as speculators indulged in losing grip after holding price in tight range during the last couple of weeks.
The benchmark January contract recorded loss of 0.7 percent or Rs 140 this week to settle at Rs. 18,990/bale (170kg each) on the Multi Commodity Exchange Ltd (MCX).
Total open interest during the week rose marginally, whereas volume was seen rising. Weakness in price followed by higher open interest and strong volume provide hints of bearishness at the counter.
DOMESTIC SPOT MARKET
Spot cotton in domestic market was on a tight range, but managed to settle on firm note this week supported by good demand from mills, traders and exporters. Exporters were active in covering position for their commitments for the next month amid improved supply. Mills are buying cotton in hand-to-mouth volume as they anticipate correction ahead with rise in supply.
Cotton (Shankar 6 A Grade) rose 1.8 percent at Rs 39,400/candy (356kg each) compared to Rs 38,700/candy last week.
As per the latest SIMA report, around 595 mills are shut across the country with 395 mills being in South India. Even though the market was slowly improving with weavers and powerlooms slowly resuming their business, trade activity continued to remain sluggish with the tentative price trading steady throughout the week.
Improving export demand for cotton yarn from India was the only supporting factor for spinning mills to make raw material purchases.
However, temporary sluggishness may likely prevail in export as market participants globally will be on a long vacation until mid-January. The export market may witness major movement thereon provided that both, the domestic spot price, which at present is competitive among major producing countries and Rupee remaining above the 67-mark level against the US Dollar, may support export performance in the weeks ahead.
On the supply side, cotton arrival during the week was sharper with steady increase on a daily basis. The total arrival during the week (Dec 19-23) was around 9.99 lakh bales, which increased by 60 percent compared to 6.21 lakh bales arriving last week (Dec 13-16). The supply sentiment at the moment is high which may weigh in on cotton price in the absence of any supporting factor.
The market fundamental is weak as supply seems to be more optimistic compared to demand and this trend may likely continue for more two weeks until the price reaches a bottom.
At present, Indian cotton price is competitive on the global market as it was trending between 72-74 cents/lb for the third week in a row. Gujarat Shankar 6 30MM cotton price was trending around 73.11 cents/lb as on December 23, 2016. Whereas, price of US cotton on the Intercontinental Commodities Exchange (ICE) futures was around 69.50 cents/lb and Pakistan's KCA spot rate at 72.52 cents/lb. Brazilian cotton index was at 82.76 cents/lb and the Cotlook Index A at 79.20 cents/lb.
Conclusion:
Cotton prices in the domestic market may trade negative ahead, but a lot will depend on supply. In case, daily arrival rises to 2 lakh bales and above, some correction in prices cannot be ruled out. Market participants are expecting cotton to rule in the range of Rs 38000-38,500 per candy. Price on international market may also witness negative tone and may closely track developments in Indian market.
(By Commoditiescontrol Bureau; +91-22-40015533)
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