Weekly: Cotton Exhibits Bearish Tone For The Week Ended April 8

MUMBAI(Commoditiescontrol)– Cotton market exhibited a bearish tone in the week ended April 8 due to consecutive second week sluggish trade in India and long liquidation by speculators in the US market.

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 throughout the week falling 5 percent over the week to 73.46 cents/lb on long liquidation by speculators.

The May contract fell to a 10 week low at 73.38 cents/lb on Friday with open interest falling 25 percent over the week to 1.03 lakh lots.

The effects of last week’s plantation report was still visible as the 21 percent jump in acreage to 12.233 million acres along with expectation of better crop for 2017-18 season was weighing on the speculators sentiments as they were cashing in their chips.

According to International Cotton Advisory Committee (ICAC), production for 2017-18 is forecasted to increase 1.5 percent to 4.81 million tons(28.3 million bales of 170 kg each).

Further, as the first notice day period was day by day closing-in, index funds were rolling their position into next month July contract.

The index fund and spec liquidation have allowed the market to retrace the 73 cents level which helped mills to to a level to fix price on their commitments

As of March 31, CTFC report showed a significant decline in on call sales by 8,729 lots for the May contract to 19,046 lots (1.93 million bales of 480 lb each) as of March 31. Surprisingly, unfixed on call sales declined in July by 525 lots to 44,059 lots (4.89 million bales) while December marginally increased 10 lots to 23,476 lots (2.45 million bales).

This left around 63,359 lots to be fixed for both May and July contract which may provide support if the market suffers from technical breakdown.

Adding to the bearish sentiment this week was the USDA export sales report. The USDA, in its weekly export sales report released on March 30 pegged export sales at 284,600 Running Bales (RB) in the week March 24-30, 2017. It decreased 29 percent from previous week's 402,100RB. (Full Report)

Total commitments for the season have now reached 13.55 million statistical bales, of which 9.0 million bales have already been exported. Experts believe if the current pace continues then exports could touch 14 or may be even 15 million bales by July 31.

The market is awaiting the USDA’s World Agricultural Supply Demand Estimates (WASDE) due on April 11. The export figure may likely be revised from 13.2 million bales to 13.7 million bales in the April balance sheet.



CHINA MARKET:

Chinese market ended the week bearish as the September contract on ZCE futures settled down 0.74 percent to 15,435 yuan/tonne on Friday over the week.

Market participants were rolling over their positions from May to September as the open interest increased 22 percent to 195,080 lots while volume decreased 22.5 percent during the week to 510,346 lots as the cotton market was on a vacation from April 2-4.

Meanwhile, as of April 7, around 535,665 tonnes (31.50 lakh bales of 170kg each) were sold in the on-going State Reserve Auction from the total offered quantity at 735,022 tonnes (43.23 lakh bales). (Full Report)





INDIAN MARKET:

The Indian cotton futures exhibited a bearish sentiment on major long liquidation.

The MCX April cotton futures settled down 2 percent over the week at Rs 20,650/candy hovering around the 3 month low level on Friday.

Open interest continued to weaken over the week by 6.6 percent to 1.82 lakh bales indicating long liquidation from higher levels. Meanwhile, volume declined 2 percent to 3.71 lakh bales.

The contract has fallen below its 21 day SMA trend line along with other technical indicators exhibiting a bearish tone.

Meanwhile, open interest was increasing in the next month May contract to 1.16 lakh bales, higher 22 percent over the week amid 1.5 percent decline in price to Rs 20,860/bale indicating short build up.

Expect lower levels 20,360-19,510 and retracement levels to be tested with volatility.The retracement levels of the rise from 18,270 to 21,650 are placed at 20,381-19,985-19,619.

DOMESTIC SPOT MARKET:

Spot cotton market was volatile in the week ended April 7 in bleak trade activity amid weak trend on the futures market.

The market began the week jumping nearly Rs 1000/candy with prices registering a fresh season high in North India at Rs 46,550/candy(4,875/maund). However, as the week progressed, lackluster demand coupled with weakness in futures market weighed on the spot market as it ended on a bearish side losing nearly Rs 600-800/candy to average in the price band of Rs 38,000-45,500/candy on Friday.





The week on week comparison showed a mixed trend with average prices marginally lower in some markets of Central India while continued to remain higher in North India and South India.

The Gujarat Shankar 6 A Grade cotton was marginally lower 0.4 percent to Rs 44,425/candy compared to Rs 44,610/candy in the last week.

Meanwhile, prices in the North Indian market was higher 1.2 percent to Rs 44,950-45,950/candy(4,710-4,820/maund) as it was the fag end of the supply season which provided the fundamental support during the week.

The Maharashtra 30mm prices increased 0.7 percent to average Rs 44,700/candy from Rs 44,400/candy in the previous week.

As the supply season reaching its fag end in most regions, the country has received arrvials of nearly 80-85 percent of the total estimated crop. As per the data collated from market sources, arrivals for the week (April 3-7) fell 28 percent to 3 lakh bales from 4.17 lakh bales in the prior week (March 27-31) with the average daily arrivals at 0.75 lakh bales. The market was celebrating ‘Ram Navami’ on Tue-Wed (April 4-5) whereby no arrivals were recorded on Tuesday.

Meanwhile, surging rupee against dollar since past one month has made impoerts more lucrative which may cap further gains in spot prices. Rupee against dollar registered a fresh 20 month high on Friday at 64.28 mainly due to on-going geopolitical issue.


With nearly 15 lakh bales contracted and quotations of Australian cotton ranging between 90-93 cents depending on the staple length, mills may likely be inclined to import more cotton during May-July period pressuring domestic spot price.

Meanwhile, due to sluggish arrivals and lower quality stock arriving in the market, some mills preferred to procure cotton from MNCs with quotations ranging between Rs 45,500-46,700/candy deliverable during the month of May.

Observing the market trend in past few weeks, it seems to be holding key resistance level of Rs 46,500/candy.

Conclusion:

The domestic market witnessed another round of sluggish trade activity with prices weighed down by lackluster demand and strengthening rupee. It seems like the spot market is holding below the key resistance level of Rs 46,500/candy.

Meanwhile, the current prices were on the premium side by 2 cents to Cotlook Index A at 85.6 cents/lb while was much higher compared to US cotton which was at 70.97 (average spot quotation) and futures was at 73.38 as of April 7 which would incline interest towards importing more cotton.

At present, The spot market was in backwardation by 3.45 percent compared to future prices of April and May indicating that spot prices may weaken in the short to medium term. Adding to the bearish sentiment was the premium price of domestic cotton over the international cotton.

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