Weekly: Cotton Exhibits Bullish Trend

MUMBAI(Commoditiescontrol)– Cotton markets across the globe ended the week on bullish side with the unfixed on call figures on the US market recording a minor decline and the gradually declining supply in India supporting the domestic market sentiment.

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

US MARKET:

The US cotton Futures ended the week on a bullish side as May contract on the ICE futures settled up 0.24 percent at 78.36 cents/lb while was higher 1.4 percent over the week.

The latest CTFC report showed little change in the unfixed on call position which was the keeping market participants on the edge. Around 7.9 million bales were hanging unfixed in the May and July contracts which decreased a bit from 8.01 million bales as some mills fixed their position when prices had fallen to 76.81 cents/lb on Monday.

However, major mills were waiting for a massive drop in prices in order to fix their position. The total amount of unfixed on-call sales actually increased to 11.85 million bales, up 0.3 million from the week before.

Further, increasing total open interest at 29.14 million bales (480lb each) compared to 285.25 million bales (480lb each) with May at 16.53 and July at 5.63 million bales was indicating that large number mills have yet to fix their position.

Meanwhile, The USDA, in its weekly export sales report released on March 16 pegged net upland sales at 316,500 Running Bales (RB) in the week March 2-9, 2017. It increased 27 percent from previous week's 248,900 RB while was marginally lower 4 percent from the prior 4 week average. Total commitments for the season have now reached 12.5 million statistical bales, of which 7.7 million bales have so far been exported. (Full Report)

With nearly record high unfixed calls coupled with a larger trade short figures, the market is likely to be on a bullish trend. We need to keep a close high on the record high unfixed calls which will be the deciding factor.



CHINA MARKET:

Chinese market ended the week on the weaker side as the May contract on ZCE futures settled lower 0.5 percent at 15,245 yuan/tonne on Friday compared to prior session while was 1.6 percent down over the week.

Open interest decreased 13.4 percent to 247,666 lots while volume decrease 43.3 percent to 978,446 lots.

As of March 17, around 267,839 tonnes(15.76 lakh bales of 170kg each) was sold in the on-going State Reserve Auction from the total offered quantity at 311,635 tonnes(18.33 lakh bales). (Full Report)

Various comments indicated that variation in the quality due to old cotton stock (2011-2013) being sold was the main reason behind the weakening demand. However, those are mere speculations as the Auction has just completed two weeks on March 17. With nearly 24 weeks of Auction left, it seems too early to jump to conclusions.



INDIAN MARKET:

The Indian cotton futures ended the week bullish tracking the ICE futures market trend.

The MCX March cotton futures settled higher Rs 60 or 0.3 percent at Rs 21,420/candy while was marginally higher 0.8 percent compared to previous week at Rs 21,260/candy.

Over the week, open interest lowered significantly 24 percent to 1.18 lakh bales whereas volume decreased 48 percent to 2.62 lakh bales. Traders and speculators were rolling forward their position in the next month April contract. They are likely expecting the trend to remain bullish as both price and open interest was on the positive side.

The April contract settled higher Rs 80 or 0.4 percent at Rs 21,600/bale while was higher nearly 1 percent over the week. Open interest increased nearly 28 percent over the week to 1.72 lakh bales as of March 17.




DOMESTIC SPOT MARKET:


Spot cotton market was volatile during the week in thin volume trade to average between Rs 42,950-45,450/candy. It ended the week marginally weaker by 2 percent.

The Maharashtra 30mm prices was marginally lower 0.4 percent to average Rs 43,913/candy from Rs 44,080/candy in the previous week. Similar trend prevailed in Gujarat with Shankar 6 A Grade cotton pegged at Rs 43,950/candy, tad lower 0.2 percent compared to Rs 44,050/candy last week. Meanwhile, prices were lower in the some market of North India by more than 1 percent to average between Rs 44,900-45,450/candy (4,700-4,760/maund).

Trade activity during the week was dull with merely small lot deals reported from need based spinners. Higher asking price in the market was keeping leading spinners off the trading ring as most of them have enough stock in their inventories to meet their near term requirements.

Spot price was heavily influenced by futures market trend which ended the week settling on the bullish side.

Fundamentally, some regions(North India, Madhya Pradesh, Karnataka and Andhra Pradhesh) have only 15-20 percent of supply power remaining as they have very little crop left to arrive in the days ahead. This has reduced daily arrivals from 1.70 lakh bales to 1.40 lakh bales.

As per the latest arrival figures released by the Cotton Corporation of India(CCI), the country has received a total of 238.25 lakh bales of 170kg each as of March 16, 2017 which implies that nearly 70 percent of the total estimated crop production has arrived in the market.

Arrivals in Maharashtra and Gujarat have reached nearly 68-70 percent of the total crop. The worrisome factor was Telangana which has reached only 60 percent of the total crop estimated at 47 lakh bales leaving almost 17 lakh bales left to arrive in the market. (Full Report)

Meanwhile, appreciation in Rupee coupled with gradually declining supply was not supporting the export sentiment. Rupee settled 5 paise higher at 65.48 against US dollar on Friday, retreating from the 17 month high when it touched 65.23 earlier on Thursday.

Conclusion:

The market is on a standstill situation awaiting fresh cues to direct the spot market.

If we look at the fundamentals, the domestic market is likely to continue the bullish route with little room left for the bearish side to prevail considering short supply on account of dwindling stock.

Trade activity in the physical market was taking cues from the futures exchange which was volatile in nature and market participants were cautiously striking deals.

Overall, the market sentiment is bullish both on the global and domestic market front

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