Weekly: Cotton Bullish Supported By Global Market Cues

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

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

US MARKET:

The US cotton Futures ended the week bullish as May contract on the ICE increased 1.4 percent settling at 76.1 cents/lb.

The market received support from strong export sales and some mill fixation with prices beginning from 75.50 cents/lb.

The latest CFTC report show a total of 11.52 million bales were unfixed from which 8.03 million bales are on May and July. By comparison in the last two seasons there were less than 3 million bales still open on May and July at this date. The only other season that comes somewhat close is 2010-11, when 5.98 million bales were unfixed.

Meanwhile, with most of the market players rolling forward their position, the March open interest was at 17,000 bales implying ample amount of certified stocks at 323,678 bales would be delivered in either May or July. This is sending a signal to the market that the 74 cents level represents support from a cash market point of view!

On the other hand, strong export sales report kept the market on the bullish zone.

The USDA, in its weekly export sales report released on February 24 pegged net upland sales at 367,200 Running Bales (RB) in the week February 10-16, 2017, an increase of 65 percent from previous week and 21 percent higher from the prior 4 week average.(Full Report)



CHINA MARKET:

Chinese market ended the week more or less steady as the May contract on ZCE futures settled tad higher 0.1 percent over the week at 15,660 yuan/tonne on Friday.

Open interest was marginally up 0.42 per cent to 308,854 lots while volume decreased 12 percent to 14,70,894 lots.

The market is technically on a bearish side with domestic mills procuring cotton on a limited basis as most of them have cover their positions until end of March. The market participants were gearing up for the State Reserve Auction from March 6 onwards.



INDIAN MARKET:

The Indian cotton futures ended the week on a bullish side by surging 3.3 percent witnessing the biggest weekly percentage gain since January 23.

The benchmark MCX March contract settled at Rs 21,120/bale on Friday, registering a 6 month high.

Over the week, open interest increased 15 percent to 2.31 lakh bales whereas volume increased 31 percent to 3.53 lakh bales.

The bullish trend in the market is expected to continue in the days ahead with some minor dips caused by speculators booking profits.



DOMESTIC SPOT MARKET:

Spot cotton market was on a bullish trend throughout the week on renewed demand by leading buyers to average between Rs 42,200-44,100/candy.

Comparing the weekly statistics, cotton recovered most of the previous week's losses by jumping nearly Rs 1000/candy. However, it continued to remain a bit lower by 1 percent over the week.

The Maharashtra 30mm prices was tad low 0.6 percent to average at Rs 42,900/candy from Rs 43,040/candy in the previous week. Similar trend prevailed in Gujarat with Shankar 6 A Grade cotton pegged at Rs 43,040/candy, marginally lower 0.5 percent compared to Rs 43,270/candy last week.

The weekend bearish trend led leading purchasers to short cover their position which brought the price back into the green zone. Meanwhile, sellers showed some reluctance on account of surging futures prices and speculation of decline in raw cotton arrivals which at some states were near to completion.

Comparing the production estimate and arrivals of each state as of February 23, North India and Madhya Pradesh were leading with arrivals reaching 75-80 percent of production estimate.

So the major suppliers are Maharashtra, Gujarat and Telangana which at present have nearly 35, 40 and 50 percent supply yet to come. The hopes of daily arrivals crossing 2 lakh bales appear bleak as other states have almost brought all their produce.

As per the latest arrivals figures released by Cotton Corporation of India (CCI), the country has received 202 lakh bales as against total production of 341 lakh bales, leaving 40 percent yet to arrive in the days ahead. (Full Report)

Meanwhile, the rising cotton prices was not supporting export sentiment as the current Indian price in USD cents/lb was hovering around the 82-84 cents/lb mark higher 4 cents to USA, the leading exporter, at 78-80 cents/lb however lower 2 cents to Cotlook Index A.

India has already shipped 36 lakh bales as of end of January covering nearly 71 percent of the projected exports of 50 lakh bales. The Rupee against USD last traded at 66.89 touching a fifteen week high against the US dollar on Thursday.

Exports is likely to remain sluggish in the days ahead as demand from major importer China will remain silent as they resume the State Reservation Auction from March 6. The only remaining major importer left would be Bangladesh, Pakistan, Vietnam and Thailand.

However, India is expected to face stiff competition from Australia, which expects a bumper crop at 60 lakh bales, and Brazil, which is likely to produce 84 lakh bales, both beginning their cotton season from March onwards.

Conclusion:

Observing the activities over the weeks, speculation and global market trend has reigned throughout February which was the reason behind the prices volatility.

Cotton is likely to remain on the positive side in the long term as sluggish arrivals is likely to support cotton price. However, with major buyers covering their position for the next half month and MNCs entering the market with their inventories, demand may remain limited.

Overall, the market is on a wait and watch mode awaiting some fresh cues from global markets.

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)