Weekly: World Cotton Ends On Bearish Tone!

MUMBAI(Commoditiescontrol)– Cotton markets across the globe ended the week on a bearish note.

Let’s first look at how the global market faired throughout the week.

US MARKET:

The US cotton Futures ended the week bearish as May contract on the ICE fell sharply by 2 percent settling at 75.52 cents/lb and posting its biggest weekly percentage fall since January 13.

Market participants were rolling forward their net short position from March to May contract which was the main reason for the fading strength.

Observing the increasing open interest which as on February 16 was at 286.73 lakh bales (480lb each) from 277 lakh bales on February 2 showed that there was negligible net liquidation of spec or trade positions, as both sides continued to hold to their historically large bets.

Meanwhile, the CFTC on call witnessed its first overall reduction in many months, as March fixations outpaced new on-call position in May and July indicating that mills have rolled forward their position trying to buy some time to fix their outstanding position at a lower price.

As of last Friday there were still 1.8 million bales in unfixed on-call sales on March, down 1.1 million on the week. May and July saw their unfixed sales increase to 4.0 and 3.5 million bales, respectively. Total unfixed on-call sales still amounted to 11.9 million bales, of which 9.2 million are in current crop.

On the other hand, strong export sales was seen for the second consecutive week. As per USDA, another 358,200 running bales of Upland and Pima were sold for both marketing years. (Full Report)



CHINA MARKET:

Chinese market declined as the May contract on ZCE futures settled 2 percent lower over the week at 15,645 yuan/tonne on Friday, registering nearly a 4 week low.

Open interest decreased 8 per cent to 307,584 lots and volume decreased 14 percent to 190,016 lots.

The market is technically on a bearish side with domestic mills procuring cotton on a limited basis as they gear up for the State Reserve Auction from March 6 onwards.



INDIAN MARKET:

The Indian cotton futures ended the week falling 1.5 percent witnessing the biggest weekly percentage fall since January 30. The benchmark MCX February contract settled at Rs 20,460/bale on Friday, registering nearly a 2 and ½ week low.

Over the week, open interest decreased sharply 36 percent to 1.18 lakh bales whereas volume increased 49 percent to 3.46 lakh bales as some intraday speculators secured short position to book profits.

Major market participants were rolling forward their short position to the March contract as the open interest increased 29 percent to 2 lakh bales.

The MCX March contract settled lower over the week by nearly 2 percent to Rs 20,530/bale.

DOMESTIC SPOT MARKET:

Spot cotton market was firmed up nearly 2 percent over the week to average between Rs 42,700-44,250/candy on good demand and tracking global cues.

The Maharashtra 30mm prices was nearly 1 percent higher to Rs 43,190/candy from Rs 42,790/candy in the previous week.

Similar trend prevailed in Gujarat with Shankar 6 A Grade cotton pegged at Rs 43,270/candy, higher by more than 1 percent compared to Rs 42,760/candy last week.

Prices were firm at the beginning of the week on good demand. However, the firmness lasted for a day or two after buyers lost their interest leading to steadiness for the next few days to finally giving up the gains and ending the week falling nearly Rs 700/candy to average Rs 41,750-44,200/candy

Speculators were driving the markets based on global cues. The market was signaling toward bearish trend as supply was exceeding demand. The consistent ample supply over the past few weeks was limiting price rally whereas demand from leading buyers was basically to cover their near term requirements and exporters mostly silent on account of high priced Indian cotton at around 83-86 cents/lb in the world market.

Raw cotton (kapas) arrivals, collated by Commodities Control, for the week (Feb 6-10) was at 9 lakh bales, which was marginally 4 percent lower compared to previous week (Feb 6-10) was at 9.41 lakh bales. The marginal decline was due to on-going civic body election being held in the state of Maharashtra which was the leading producer of cotton this season. Sluggishness may likely be witnessed throughout next week as well.

The Cotton Corporation of India (CCI) reports that 186 lakh bales have arrived in the market as on February 15. (Full Report)

Conclusion:

The market seems to have lost the enthusiasm as supply edged over demand. With nearly 45 percent of crop yet to arrive, supply pressure is expected to weigh on prices at least not in a near term but definitely in the future.

Fundamentally, leading buyers are expected to resume procurement as prices dip. However, if arrivals crosses 2 lakh bales a day, then buyers are likely to adopt wait and watch stance anticipating further decline in price.

Looking at speculators, volatility can be expected as major traders were tracking the futures markets and trading in the spot market.

(By Commoditiescontrol Bureau; +91-22-40015534)