MUMBAI(Commoditiescontrol)– Cotton market was volatile in the week ended March 24 with gradually declining supply in India; steady performance of Auction in China; around 8 million bales of unfixed on call sales left in US.
Let’s first look at how the global market faired throughout the week in detail.
US MARKET:
The US cotton futures was volatile throughout the week with prices falling back to the 77 cents level on long liquidation as open interest declined 3.7 percent over the week to 154,035 lots on Thursday.
The May contract fell nearly 1 week low at 76.84 cents/lb on Tuesday which provided some support for mills to fix their on-call sales.
The latest CTFC report showed little change in the unfixed on call position in the May contract as the unfixed on call sales declined 2,939 lots to 33,277 lots over the week however it increased 741 lots to 43,359 lots. This left around 76,846 or nearly 8 million bales to be fixed for both May and July contract. Mills seem to wait for a massive price drop and accordingly fix their on-call sales.
Such sell side liquidity could be provided by the speculators who have a massive amount of long positions held in the market and the bull trend favored their sentiment.
However, next week’s USDA planting intentions report will likely set the tone in the market whereby the bear side is likely to prevail in the near term as the sowing acreage is expected to increase for the 2017-18 crop season. NCC’s planting intentions survey showed a 9.4 percent jump in overall cotton acres this year at 11.0 million.
Meanwhile, The USDA, in its weekly export sales report released on March 23 pegged net upland sales at 328,200 Running Bales (RB) in the week March 10-16, 2017. It increased 4 percent from previous week's 316,500 RB while was marginally lower 7 percent from the prior 4 week average. Total commitments for the season have now reached 12.451 million running bales, of which 7.863 million bales have so far been exported.
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CHINA MARKET:
Chinese market ended the week more or less on the steady side as the May contract on ZCE futures settled tad higher 0.03 percent at 15,220 yuan/tonne on Friday compared to prior session.
Open interest decreased 11.7 percent to 218,824 lots while volume decreased 15 percent to 836,074 lots.
As of March 24, around 374,950 tonnes (22.05 lakh bales of 170kg each) was sold in the on-going State Reserve Auction from the total offered quantity at 464,659 tonnes (27.35 lakh bales). (Full Report)
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INDIAN MARKET:
The Indian cotton futures ended the week marginally bearish on some profit booking at higher levels.
The MCX April cotton futures was 0.3 percent down over the week to settle at Rs 21,540/candy.
Over the week, open interest showed strength as it increased 15 percent to 1.99 lakh bales indicating that market players were betting on the bull to prevail considering strong fundamentals expected to support prices in the long term.
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DOMESTIC SPOT MARKET:
Spot cotton market traded volatile during the week to average between Rs 43,000-45,900/candy increasing nearly 2 percent over the week.
The Maharashtra 30mm prices was marginally higher nearly 1 percent to average Rs 44,320/candy from Rs 43,913/candy in the previous week. While the Gujarat Shankar 6 A Grade cotton increased nearly 2 percent to Rs 44,710/candy compared to Rs 43,950/candy in the last week.
Prices were volatile throughout the week falling nearly 2 percent or Rs 500-700/candy earlier in the week to average at Rs 43,000-45,600/candy tracking weak futures market. However, it snapped the 2 day losing streak and recovered most of the losses to surge nearly Rs 300-500/candy across major markets on Thursday.
Reluctant selling amid short supply supported prices throughout the week with prices bouncing back to the season high level in North India to average between Rs 45,200-46,100/candy. (4,730-4,830/maund)
The situation in the market has reached to such a point that there was equal ratio of buyers to sellers. Leading buyers have covered their near term requirements with some small and medium scaled buyers purchasing on a hand to mouth basis.
Higher cotton price and variation in quality of cotton has inclined some mills to rely on imported cotton as reports of nearly 15 lakh bales contracted circulated during the week. Buyers have preferred to import from US and Australia to meet their requirements during June and July. Estimated imports for the 2016-17 season is expected to touch 22-24 lakh bales.
Encouraging the import was appreciation in Rupee against Dollar. Rupee appreciated nearly 2.3 percent in two weeks from 66.81 levels on March 9 to a 17 month low at 65.30 on March 21 against US dollar. It settled 11 higher on Friday at 65.41 level.
Meanwhile, nearly 74 percent of the total estimate crop at 341 lakh bales have arrived in the market. As of March 23, around 257 lakh bales have arrived as per the arrival report released by Cotton Corporation Of India(CCI). (Full Report)
However, arrivals jumped from 238 lakh bales as of March 16 to 257 lakh bales as of March 23 was surprising. Calculating the average daily arrivals during the same period would be around 2.67 lakh bales which seems significantly overstated when we compare the arrival figures collected from market sources.
As per the data collected from market sources, around 5.93 lakh bales arrived this week(March 20-24) which was marginally down from 6.02 lakh bales during prior week (March 14-17) with daily arrivals limited to 1.30 lakh bales. Arrivals have fallen nearly 39 percent from the second week (March 6-10) of March at 9.75 lakh bales when daily arrivals were touching 1.70 lakh bales.
The fall in arrivals was due to little crop left in some regions (North India, Madhya Pradesh, Karnataka and Andhra Pradesh) which have nearly received 80-90 percent of the total estimated crop. Supply is expected to gradually decline in the days ahead with arrivals falling below 1 lakh bales mark due to little crop and daily cash transaction limited to 2 lakh bales from April 1 by the Reserve Bank of India (RBI).
Conclusion:
Spot prices were heavily driven by the speculative trade witnessed on the futures market.
Bullish cues were still in place with short supply on account of little crop left in the market which would keep supported prices in the long term. Technically, prices are expected to cross Rs 45,200/candy in the near term with the long term view to touch Rs 49,500/candy. (Full Report)
Trade activity is expected to remain sluggish next week ahead of the financial year ending March 31.
(By Commoditiescontrol Bureau; +91-22-40015534)
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