MUMBAI(Commoditiescontrol)– Cotton market was exhibited a bearish tone in the week ended March 31 due to sluggish trade in India and 21 percent jump in estimated sowing acreage for 2017-18 season in US.
Let’s first look at how the global market faired throughout the week in detail.
US MARKET:
The US cotton futures was inclined to a bearish side since the beginning of the week volatile throughout the week with prices falling nearly to 76 cents level on long liquidation as open interest declined 9.2 percent over the week to 140,955 lots as of Thursday.
The May contract fell to a more than 5 week low at 76.1 cents/lb on Thursday ahead of the USDA prospective planting report which was scheduled on Friday, March 31.
The planting report exceeded market expectation which jumped to 12.233 million acres, up 21.4 percent from last year at 9.56 million acres. Intentions rose by 21.5 percent to 12.001 million acres of upland and 19.3 percent to 232,000 acres of Pima or extra-long staple cotton.
The market received a temporary pressure weighing on prices to touch intraday low at 76.1 cent/lb on Friday. However, it recovered and settled on the higher side at 76.23 cents/lb.
Meanwhile, the latest CTFC report showed a significant decline in on call sales by 5,502 lots for the May contract to 27,775 lots (2.89 million bales of 480 lb each) as of March 24. However, July increased further 1,015 lots to 44,584 lots (4.64 million bales) and December increased 1,966 lots to 23,466 lots (2.44 million bales).
This left around 72,359 lots or 7.5 million bales to be fixed for both May and July contract.
The most recently available data suggest a willingness of some mills to fix price on contracts near 76.50-77.50 cents, basis the ICE May futures which was supporting the market from breaking below the 76 cent level since past few weeks.
Supporting the market was the consecutive strong export sales since past few months. The USDA, in its weekly export sales report released on March 30 pegged export sales at 402,100 Running Bales (RB) in the week March 17-22, 2017. It increased 19 percent from previous week's 338,200 RB. (Full Report)
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CHINA MARKET:
Chinese market ended the week bearish as the September contract on ZCE futures settled down 1 percent to 15,395 yuan/tonne on Friday compared to prior session while was down 2.5 percent over the week.
Market participants were rolling over their positions from May to September as the open interest increased 16 percent to 182,158 lots while volume increased 41 percent during the week to 680,768 lots.
Meanwhile, as of March 31, around 465,723 tonnes (27.39 lakh bales of 170kg each) were sold in the on-going State Reserve Auction from the total offered quantity at 615,142 tonnes (36.18 lakh bales). (Full Report)
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INDIAN MARKET:
The Indian cotton futures ended the week on the bearish on some profit booking at higher levels.
The MCX April cotton futures settled lower 2.3 percent over the week at Rs 21,040/candy registering more than a five week low on Friday.
Open interest declined for the first time over the week by nearly 2.2 percent to 1.94 lakh bales indicating long liquidation from higher levels. Meanwhile, volume declined 7 percent to 3.80 lakh bales during the week.
The contract slumped nearly 3.4 percent from Rs 21,790/bale when it touched contract’s life high on March 20.
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DOMESTIC SPOT MARKET:
Spot cotton market was inclined on the bear side to average between Rs 40,000-45,450/candy decreasing nearly 1.8 percent over the week.
The Gujarat Shankar 6 A Grade cotton was marginally lower 0.2 percent to Rs 44,610/candy compared to Rs 44,710/candy in the last week. Meanwhile, prices in the North Indian market fell nearly 1.7 percent to Rs 44,450-45,450/candy(4,655-4,760/maund).
However, The Maharashtra 30mm prices was tad higher 0.2 percent to average Rs 44,400/candy from Rs 44,320/candy in the previous week.
The market was devoid of major activity as traders and spinners were busy closing their books of accounts as the financial year 2016-17 was ending on March 31. Small lot deals were reported in earlier in the week from need based buyers at higher prices however most market participants intended to resume their business afresh from the first week of the 2017-18 financial year.
Spot market was weighed by the bearish cues received from the futures market as prices slipped nearly Rs 500/candy over the week.
Meanwhile, nearly 78 percent of the total crop estimated at 341 lakh bales has arrived in the market. As of March 30, around 265 lakh bales have arrived as per the arrival report released by Cotton Corporation Of India(CCI). (Full Report)
The daily arrivals as per CCI were calculated to reach nearly 1.20 lakh bales from March 23 to March 30. However, we believe the figures were slightly overstated considering the data collated from trade sources was hovering around the 0.69-0.90 lakh bales.
As per the data collected from market sources, arrivals for the week (March 27-31) fell 30 percent to 4.17 lakh bales from 5.93 lakh bales in the prior week (March 20-24) with the average daily arrivals at 0.83 lakh bales.
The country has only 22 percent of supply power left and daily average arrivals from April onwards will hover around the 0.80 lakh bales mark and gradually decline in the days ahead.
Rupee against dollar was gaining further ground as it settled at 64.85 on Friday. This is the highest closing of the rupee since October 23, 2015, when it had closed at 64.83.
The attractive levels of Rupee against dollar led to speculations that India may import around 30 lakh bales in 2016-17 with nearly 15 lakh bales already contracted as of March 31. From the 15 lakh bales, around 11 lakh bales were commitments from US and the remaining from other regions.
Conclusion:
The domestic market was heavily influenced by speculative trade on the futures market as fundamentally, the market has only 20 percent supply power left or maybe even less which is likely to keep prices on the upward trend.
Spot market has returned to the similar levels witnessed last April when prices were hovering around Rs 44,000-45,000/candy and with supportive fundamentals, likelihood of prices reaching Rs 49,000/candy should not be disregarded.
Alternatively, the market may witness a temporary bull trend during earlier next week as participants will return to their business with new hopes for the financial year 2017-18 however, appreciating rupee may pressure prices during the week.
(By Commoditiescontrol Bureau; +91-22-40015534)
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