Cotton Weekly: Market Trends On Bearish Trajectory For The Week Ended April 28

MUMBAI(Commoditiescontrol)– Cotton market traded in a bearish trajectory in the week ending April 28, with most markets witnessing major losses over the week.

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

US MARKET:

The US cotton futures retreated to a bearish trajectory for the week ended April 28, with July futures witnessing biggest intraday loss since April 3.

The July contract dropped 1.8 percent or 1.43 cents/lb to 77.96 cents/lb on Thursday from 79.39 cents/lb in the prior session. The sluggish export sales which was the lowest since September 22 pressured prices significantly on Thursday.

The USDA, in its weekly export sales report released on April 27 pegged export sales at 121,400 Running Bales (RB) of 498 lb each in the week Apr 14-20, 2017. It decreased 49 percent from previous week's 237,000 RB. (Full Report)

Total commitments for the 2016-17 season were reported at 13.81 million running bales (14.33 million 480lb bales).

Despite, the weak export sales, open interest marginally declined 0.03 percent to 136,782 lots (14.2 million 480lb bales) which was the highest quantity ever till date.

The market players expect bull trend to prevail until July with support from the unfixed on call position which, as of April 21, increased 3,010 to 45,733 lots (4.57 million 480lb bales) and 1,293 to 28,437 lots (2.84 million bales) in December.

Considering the record open interest and the part of the unfixed on call sales in July, it will support the market in the long term which could push prices to 80 cents or even above. However, if the market witnessed another round of miracle spec liquidation, like previously witnessed in early April then it would favor the mills giving them a lifeline to fix their on call.




CHINA MARKET:

The ZCE cotton futures tumbled with minor losses as prices hit more than a week low on Friday.

The September contract on ZCE futures closed lower nearly 1 percent to 15,950 yuan/ton, on Friday. The contract witnessed the biggest percent loss since March 30 tracking the weakness across the global markets.

As of April 27, open interest increased 16.6 percent to 2.86 lakh lots indicating long build up amid marginal rise of 0.8 percent in price over the week.

The China State Reserve auction continued its moderate to healthy sales during the week. As of April 28, around 868,444 tons (51.09 lakh 170 kg bales) were sold from the total offered quantity of 1,183,394 tons (69.61 lakh bales). (Full Report)





INDIAN MARKET:

The Indian Cotton futures was bearish throughout the week ending April 28, with the May contract falling to a nearly 16 week low at Rs 20,640/bale on Friday tracking the weakness on ICE futures.

The MCX May cotton futures settled down 0.2 percent or Rs 40 at Rs 20,820/bale on Friday recovering from a 16 week intraday low at Rs 20,640/bale while touched an intraday high at Rs 20,870/bale.

However, price were lower 2.4 percent compared to previous week at Rs 21,340/bale amid 13 percent rise in open interest to 7,538 lots (1.88 lakh 170kg bales) indicating that more short positioned speculators were active in the market.

The market retreated 940 points to hit an intraday low at Rs 20,640/bale neutralizing the 820 points rally witnessed in the prior week to Rs 21,580/bale in just 5 sessions.

The Daily Reversal Value(DRV) is flat and horizontal with bandwidth on the downward trend suggesting lower volatility or limited downside.

Resistance is placed at Rs 21,267 and Rs 22,027/bale while support is placed at Rs 20,507-19,747/bale. Expect sideways volatility around the DRV with weakness below Rs 20,420/bale which is also the stop loss placed for the week.





DOMESTIC SPOT MARKET:

The trend in the spot market was mostly inclined to a bearish side for most part of the week ending April 28, losing nearly Rs 200-300/candy averaging between Rs 34,100-45,000/candy.

The Maharashtra 30mm prices declined 0.6 percent or Rs 260 to average at Rs 43,590 /candy from Rs 43,850/candy in the previous week.

Meanwhile, The Gujarat Shankar 6 A Grade cotton was marginally lower 0.3 percent to Rs 43,880/candy compared to Rs 44,010/candy in the last week.

The market exhibited a bearish trend throughout the week with a minor intraday rally on Wednesday witnessed evidently in the North Indian market.





In physical trade, the story remained the same with some short-term traders making their purchases on hand to mouth basis amid demand for good quality lint which was gradually depleting as sellers were withholding limited quantity in their inventories. However, the volume of good quality lint held in ginners inventories still remains in question as they persistently quoted a higher price for their stock.

Since it was the fag end of the season, supply has significantly declined with daily arrivals reaching a maximum of 60,000 bales in the market. Further, the quality of stock arriving in the market was average in nature with its marketing term known as ‘Furdar’ quality stock with prices ranging between Rs 29,550/candy(V-797 22-24mm) to Rs 34,500/candy(Maharashtra 25-26.6mm) as of April 29.

Due to increasing arrival of the furdar quality stock amid slack demand, prices have declined Rs 500-1,500/candy in over a week.

On the arrival side, as per the data collated from market sources, arrivals for the week (April 24-28) marginally decreased 13 percent to 2.84 lakh bales from 3.27 lakh bales in the prior week (April 17-21) with the average daily arrivals at 0.57 lakh bales.

Major leading spinning mills have covered their requirements for the next two-three months. Further, slack demand in the yarn market pressured prices more than 10 percent over the period of one month. Taking the 60s-carded weft(Coimbatore) as the benchmark, prices have fallen to Rs 245/kg from Rs 270/kg quoted in the prior month. The textile demand expected ahead of ‘Ramadan Eid’ was delayed which was the main reason behind the slack demand in yarn prices.

Further, capping cotton prices was the appreciation in rupee against dollar, which was trading around the 64-point level since Mid-March. The Reserve Bank of India’s reference rate has slumped nearly 4 percent to 64.21 from 66.83 on March 3. The reference rate fell to its 21-month low level at 64.00 at April 26.

The appreciation in rupee has negatively impacted export parity of the domestic cotton average price which was around 86.13 cents/lb (ex-gin Maharashtra 30mm). The US cotton on ICE futures was at a discount by 8.4 percent to 78.87 cents while the US Spot 7 area average quotation was lower 12 percent at 75.66 cents/lb as of April 29.

Higher cotton price has demolished Indian cotton export with shipments during the first six months of 2016-17 marketing year was lower 11 percent at 48.41 lakh 170kg bales. Last year, the same period has seen shipment totaling 54.35 lakh bales. (Full Report)

However, it has raised imports as nearly 30 lakh bales have been contracted with expected delivery from Mid-May onwards as per market sources.




Conclusion:

The cottons spot prices were following the global futures market trend which caused major volatility in the past few weeks. The historical price trend showed that spot prices have reached the same levels observed during the early March. It seems the market is facing resistance between Rs 46,000 and Rs 46,400/candy.

Considering all the above factors, the upside in the market seems limited with a bearish trend in place in the coming weeks. Despite gradually declining arrivals, which has now reached 60,000 bales level from the season high at 1.95 lakh bales, the market failed to find a support.

Further, The Indian cotton was still in premium compared to other cotton producing countries, with import expected hit the market soon and the questionable limited stock of good quality lint in ginners inventories may likely keep price below the resistance levels.

Expect volatility in the spot prices if it continued to follow the futures market trend.

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