Cotton Weekly: Mill Fixation Pushes ICE May To More Than 2 1/2 Year High

MUMBAI(Commoditiescontrol)– Cotton market exhibited bullishness in the week ended April 21 with ICE May in the US market touching highest level since May 2014 on major mill fixation while the MCX May in the Indian market jumped to a 3 week high on long build up.

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 the positive trajectory with May contract touching its highest level witnessed since May 22.

The major action was witnessed in the expiring May contract which jumped significantly to touch 80.67 cents/lb on Thursday, rallying nearly 729 points from previous low at 73.38 cents/lb in over 9 sessions as the remainder of the trade shorts were covering their unfixed on call position ahead of the first notice day period beginning from April 24. However, it gave up almost 45 percent of the intraday gain as it settled lower to 78.99 cents/lb on Friday.

Meanwhile, benchmark July settled at 79.33 cents on Friday, increasing 3.7 percent over the week amid rising open interest which increased 23.5 percent over the week to 129,383 lots which was the highest number since the 2007-08 season.

The unfixed on call position have reduced 1,834 lots to 5,667 lots (0.59 million 480lb bales) in the May contract while July decreased 1,841 lots to 42,723 lots (4.54 million bales). However, increased 2,077 lots to 27,144 lots (2.83 million bales) in December as of April 14.

The 5,667 lots in May was the major reason which brought about a significant surge during this week as mill hectically fixed their position waiting until the last minute!

Meanwhile, the USDA weekly export sales exhibited a moderate performance for the week ended April 13 which was expected considering the low ending stock. The USDA, in its weekly export sales report released on April 13 pegged export sales at 237,000 Running Bales (RB) in the week Apr 7-13, 2017. It decreased 25 percent from previous week's 316,900 RB. (Full Report)

Total commitments for the season have now reached 14.15 million 480lb bales, of which 9.9 million bales have already been exported. Experts believe that the country has below 1 million bales left in the inventories from which 300,959 bales were of certified stocks.

Considering all the above the factors, the market seems in favor of the bulls in the coming days encouraging speculators to increase their net long position. However, if speculators provide another round of liquidity flush then the large number of trade short will have another opportunity to quickly cover their position. Support for the July contract is placed around the 75 cents level.

CHINA MARKET:

Chinese market ended the week on bullish side as the September contract on ZCE futures settled up 0.3 percent to 16,030 yuan/ton, touching more than 6 week high on Friday.

As of April 21, open interest increased 2 percent to 2.45 lakh lots indicating long build up amid 2 percent rise in price over the week.

The China State Reserve auction continued its moderate to healthy sales during the week. As of April 22, around 765,860 tons (45.50 lakh 170 kg bales) were sold from the total offered quantity which crossed 1 million tons to 1,033,736 tons (60.80 lakh bales). (Full Report)



INDIAN MARKET:

The Indian cotton futures exhibited a bullish tone as the May contract touched nearly 3 week high at Rs 21,580/bale on Friday.

The MCX May cotton futures jumped significantly rallying nearly 820 points from an intraday low at Rs 20,760/bale on Monday to touch Rs 21,580/bale tracking the strong cues from the ICE cotton futures. The contract has breached the 21,40 and 50 day SMA line.

Speculators raised their net long position in the May contract by 20 percent to 6,660 lots (1.66 lakh 170kg bales).

Support is placed at Rs 20,873 and Rs 20,053 while resistance is placed at Rs 21,693 and Rs 22,513. Traders long and holding the same can maintain the stop loss at Rs 20,290.



DOMESTIC SPOT MARKET:

Spot cotton market witnessed mixed trend during the week ended April 21 averaging between Rs 36,500-45,300/candy.

Prices were firm in North India while was declined round about 1 percent over the week across major markets of Central and South India.



The North Indian market increased marginally 0.5 percent over the week averaging between Rs 44,350-45,300/candy (4,650-4,750/maund) heavily influenced by speculative trade in futures market amid support of tight selling due to limited stock in inventories.

Meanwhile, The Gujarat Shankar 6 A Grade cotton was marginally lower 0.4 percent to Rs 44,010/candy compared to Rs 44,170/candy in the last week.

The Maharashtra 30mm prices declined 1.1 percent to average Rs 43,850 /candy from Rs 44,350/candy in the previous week.

The market was volatile throughout the week overshadowed by the trend on the future exchange. Physical trade was limited as both buyers and sellers were cautiously trading amid the volatile trend on the spot market.

Prices have declined mainly due to lackluster demand from leading buyers who have covered their near-term requirements. Further, slack demand in the yarn market which pressured prices nearly 7 percent over the period of one month. Taking the 60s-carded weft(Coimbatore) as the benchmark, prices have fallen to Rs 255/kg from Rs 270/kg quoted in the prior month.

Meanwhile, appreciation in rupee against dollar since early March which slumped to hover around the 64 level was another major factor having a negative effect on prices as export sentiment turned gloomy both in the cotton and cotton yarn market.

Cotton shipments during the first six months of 2016-17 marketing year declined 11 per cent to 48.41 lakh bales. Last year, the same period has seen shipment totaling 54.35 lakh bales. (Full Report)

All these factors pressured cotton price witnessing a fall of nearly 2 percent since April 1.

On the arrival side, the country has procured nearly 84.6% at 287.99 lakh bales from the estimated total crop at 340 lakh bales according to the Cotton Corporation of India (CCI) (Full Report)

At present, the domestic market was in contango by 1 percent compared to future prices of May contract.

Conclusion:

At present, the domestic market was lacking fundamental cues which was the major factor behind the volatility. We are at the fag end of the supply season with most of the crop arrived in the market. However, major stocks of good quality lint were witheld in the inventories of ginners and stockists which was supporting the prices until now.

Sellers were persistent to offload their stock at higher price however leading buyers were not interested in procurement at prevailing rates. We believe, even though there were some supportive factors which indicate bullishness however the upside seems limited in the long term with the key resistance at Rs 46,400/candy.

Sellers will have to offload their stocks sooner or later as cotton import arrives in the market beginning from mid-May along with the beginning of monsoon season which would pressure prices. As per market sources, around 30 lakh bales of imported cotton have been contracted by spinning mills as of date.

At present, Indian cotton price continued to remain on the premium side by 6.6 percent at 85 cents(ex-gin) compared to US ICE futures which was at 79.33 cents/lb and around 10 percent compared to US Spot 7 area average quotation at 76.56 cents/lb. Meanwhile, it was on a discount of 4 percent compared to Cotlook Index A at 88.55 cents/lb.

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