Weekly: Volatility Reigns In Cotton Market

MUMBAI(Commoditiescontrol)– Cotton markets across trended volatile throughout the week with speculators booking profits from higher level.

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

US MARKET:

The US cotton Futures ended the week bullish in volatile trade as May contract on the ICE increased 2.5 percent settling at 77.99 cents/lb.

Strong support was received from the export sales which pushed prices nearly to 80 cents mark. The May contract jumped to 79.18 cents/lb while the July contract touched 79.97 cents/lb.

The USDA, in its weekly export sales report released on March 2 pegged net upland sales at 481,400 Running Bales (RB) in the week February 17-23, 2017 registering a marketing year high. Total commitments for the current season have now reached 11.9 million statistical bales, of which 6.8 million bales have so far been exported. Sales are currently running around 4.7 million bales ahead of last year’s pace. (Full Report)

After the dust had settled the May contract closed on Thursday at basically the same level as last week (76.10 cents) and two weeks ago (76.77 cents) , with futures open interest still being elevated at 28.37 million bales (as of March 2) and mills still having to fix 11.46 million bales, of which 8.04 million are on May and July as the latest CFTC report.

The tug of war continued between spec longs and trade shorts with specs nearly running out of power to add more longs while traders were awaiting for a massive sell off to short cover their position.



CHINA MARKET:

Chinese market ended the week on the higher side as the May contract on ZCE futures settled tad higher 1.44 percent over the week at 15,885 yuan/tonne on Friday.

Open interest decreased 2.25 percent to 301,912 lots while volume decreased 18 percent to 257,934 lots.

The market participants were gearing up for the State Reserve Auction from March 6 onwards.



INDIAN MARKET:

The Indian cotton futures ended the week mildly bearish in speculative trade as the MCX May cotton contract was marginally lower 0.2 percent at Rs 21,170/bale.

Over the week, open interest lowered 5 percent to 2.21 lakh bales whereas volume increased 12 percent to 3.98 lakh bales.

The contract touched nearly 6 month intraday high on Thursday at Rs 21,400/bale influenced by the global market trend. Speculators seized the opportunity and booked profits which weighed on prices to finally settle at Rs 21,170/bale.

However, the trend is likely to remain upward as technically prices were above the 14 and 21 day moving average.

The 61 percent retracement of the fall from Rs 23,990 to Rs 18,250 is placed at Rs 21,790 which could tested on sustained rise and close above Rs 21,427.



DOMESTIC SPOT MARKET:

Spot cotton market witnessed correction losing nearly Rs 500/candy during the week followed by a steady trend to end the week on a quite note with average price ranging between Rs 42,500-45,000/candy.

Despite a mildly bearish trend throughout the week (Feb 27-Mar 3), cotton remains higher by 2 percent in comparison to the average price of prior week (Feb 20-24).

The Maharashtra 30mm prices was higher 1.6 percent to average Rs 43,590/candy from Rs 42,900/candy in the previous week. Similar trend prevailed in Gujarat with Shankar 6 A Grade cotton pegged at Rs 43,350/candy, marginally higher 3 percent compared to Rs 43,040/candy last week.

Major market participants were trading with a short term mindset covering their position as per their requirement and observing the futures market trend. The market is witnessing volatility as speculators reigned supreme throughout in the trade activity booking profits at higher levels.

Fundamentally, gradual sluggishness in supply was caused by some regions (North India and MP) due to the fact that nearly 75-85 percent of the total production estimate has already arrived in the market as of March 2. As per the arrival report of Cotton Corporation of India as of March 2, North India received 35.07 lakh bales out of the 47.07 lakh bales while Madhya Pradesh received 15.68 lakh bales out of 20 lakh bales.

This was prompting sellers to withhold their stocks which were supporting prices in North India as it touched a season high to range between Rs 44,400- 45,250/candy(4,650-4,740/maund). However, leading purchasers uninterested in procuring cotton at such high price adopted a wait and watch approach.

As per the latest arrivals figures released by Cotton Corporation of India (CCI), the country has received 215 lakh bales as against total production of 341 lakh bales, leaving 37 percent yet to arrive in the days ahead. (Full Report)

Trade activity was lethargic throughout the week as falling prices were keeping leading purchasers off the trading ring. Most of them have covered their near term needs so that leaves small mills who were actively purchasing as per their requirements.

Further, variation in quality due to mixing of lower grade cotton along with higher grade variety was bringing about some hesitation in the minds of both leading domestic and international purchasers to procure cotton. This was clearly evident in the region of Gujarat which has raised questions on quality superiority of the Shankar S6 cotton. (Full Report)

Despite receiving good returns on sales of yarn on good demand from retail level, mills were cautious procuring cotton. Hosiery yarn prices increased Rs 7/kg in the carded variety while surged Rs 12/kg in the combed variety in the benchmark Tiruppur market of Coimbatore.

Meanwhile, sluggishness in exports since past February month due to higher cotton price compared to the world competitors influenced the buying sentiment of leading purchasers. The current Indian price in USD cents/lb was hovering around the 82-83 cents/lb mark higher 4 cents to USA, the leading exporter, at 78-80 cents/lb however lower 3 cents to Cotlook Index A which was at 85.75 cents/lb.

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 66.81.

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.

With US registering a strong export sales since past two months along with two other competitors being 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, India’s hopes of exceeding export estimated at 55 lakh bales is looking bleak.

Conclusion:

The market is trading on speculation which was influencing the trade sentiment in the spot market unclear of the direction which the market is likely to head.

Fundamentally, gradually declining supply due to the fact that some regions have almost brought all their produce keeping only three major suppliers to satisfy the market which were Maharashtra, Gujarat and Telangana, having nearly 30, 45 and 50 percent supply yet to come respectively, is likely to support prices in the long term.

Overall, the market is on a wait and watch mode awaiting some fresh cues to steer the market clearing the foggy path ahead.

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)