MUMBAI (Commoditiescontrol) – Bullish trend continued to prevail over key cotton markets throughout this week.
Let’s first look at how the global market faired throughout the week.
US MARKET:
The US cotton Futures ended the week on the bullish note as March contract on the ICE futures was up 2 percent over the week to settle at 74.85 cents/lb on Friday.
The contract hit a 6 month high on Thursday at 77.4 cents/lb jumping more than 4 percent or 3.2 cents/lb since Monday’s closing of 77.14 cents/lb. The main factor driving the market was the large volume of unfixed on-calls of 3.55 million bales in March contract as per the CFTC report. Mills were in process of buying their unfixed position as the contract expires on Feb 21 and unfixed on call at 3.24 million bales for March.
The total unfixed calls increased by 0.13 million bales to 11.96 million bales which is nearing the record level 12.12 million bales of early November 2010. Excluding the March figure, 3.10 million bales yet to be fixed on May and 3.12 million bales on July bringing the total unfixed on-call sales in current crop to a lofty 9.46 million bales.
On the other hand, strong export sales pushed prices higher on Thursday. The USDA weekly upland sales were pegged at 328,700 Running Bales (RB) in the week January 20-26, 2017. It decreased 28 percent from previous week's 457,000 RB however was up 4 percent from the prior week average. However, export shipments reached a marketing year high of 360,500 bales to 25 destinations. (Full Report)
Meanwhile, weaker dollar, which registered more than 11 week low, falling to 99.56 also influenced the rally during the week.
The market remains vulnerable to rallies due to the current position structure, since the trade net short position will have to be reduced considerably over the coming months and that can only happen if speculators are motivated to sell.
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CHINA MARKET:
Chinese market resumed their business after a week-long spring holiday opening on a stronger note on Friday.
The May contract on the ZCE futures jumped 1.6 percent or 250 yuan/tonne at 15,900 yuan/tonne from previous settlement at 15,650 yuan/tonne on January 26. It settled higher 1.73 percent at 15,920 yuan/tonne. Open interest increased 12.7 per cent to 305,430 lots and volume increased 107 percent to 198,548 lots.
INDIAN MARKET:
The Indian cotton futures ended the week higher as benchmark February contract rose 1.3 percent to settle at Rs 20,790/bale on Friday.
Over the week, open interest decreased 11.5 percent to 7,668 lots whereas volume for the week marginally increased 2.7 percent at 4.15 lakh bales compared to previous week’s 4.04 lakh bales.
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DOMESTIC SPOT MARKET:
Spot cotton was volatile this week as prices were mixed to average between Rs 42,600-43,500/candy.
In Maharashtra 30mm prices was marginally lower 0.65 percent to Rs 42,820/candy from Rs 43,100/candy in the previous week.
In Gujarat, Shankar 6 A Grade cotton was tad higher 0.13 percent at Rs 42,888/candy compared to Rs 42,825/candy last week.
The market began the week (Jan 30-Feb 3) on bearish note as supply improved over the previous week (Jan 23-27) which weighed on prices witnessing fall of Rs 500-700/candy to average between Rs 41,350-43,600 on Tuesday.
However, firm global cues since Tuesday’s evening session influenced the market as prices reversed and began moving toward on the bull side. The trend continued over the next two days following the consecutive rally in the world cotton prices and finally snapped out of the rally on profit booking to end the week on a weak note on Friday. The average price was Rs 42,600-43,850/candy.
In fact, cues from global cotton markets was driving cotton price as market participants were following the trend and accordingly trading in the market.
One positive aspect which was evident was the improving supply since last week (Jan 23-27) where the daily raw cotton arrivals was around 1.70-1.85 lakh bales, which was similar to the figures in the month of December, adding up to 6.96 lakh bales. The trend continued with total arrivals for the week (Jan 30-Feb 3) at 8.89 lakh bales.
Farmers were getting good price for their stock at around Rs 5,500-6,000/quintal. Meanwhile, RBI withdrew the restrictions on cash withdrawals for current account holders with effect from January 30. These two factors led to supply improving over the past two weeks.
Export sentiment continued to remain dull as higher cotton prices trending around 82-85 cents/lb were not feasible for international buyers. Further, appreciating rupee against dollar since past eight sessions was not supportive! Rupee appreciated to register a 12 week high on Friday and settled at 67.32 against dollar.
Conclusion:
Observing the improving arrivals and cautious demand, cotton markets may trend bearish in the coming days. We retain our opinion that until the arrivals reach normal levels of 2.25 to 2.40 lakh bales, prices are unlikely to see any sharp correction.
Around 150 lakh bales, as per data collated by Commodities Control, have arrived in the market out of the estimates of 330-340 lakh bales, about 42-45 percent of the total estimated crop. With more or than 50 percent yet to arrive, cotton prices in long term may witness major downward correction.
However, sluggish supply is also raising doubts that the actual crop size is lower than the projected estimate. This can be a mere speculation to keep prices up and some traders have prepared for the worst while others have rejected the this speculation and are optimistically gearing up for an extended marketing season this year.
All that we can do is wait and watch for supply to resume to normal levels in the weeks ahead which will clear this mist.
(By Commoditiescontrol Bureau; +91-22-40015534)
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