Cotton Weekly: Mid-week Rains Ends Bull Rally in Indian Market

MUMBAI(Commoditiescontrol)- Indian cotton market witnessed a trend reversal as the temporary bull run related to weather conditions came to an end while the dual USDA report weighed on US cotton prices.

US MARKET:

The US cotton futures exhibited a bearish pattern throughout the week post dual USDA report which weighed heavily on prices.




The benchmark December contract lost 293 points to finally settle at 66.58 cents/lb on Friday. Price fell to 10 1/2 month low at 66.37 cents after forecast of higher world ending stock for next season in the WASDE report and mediocre weekly export sales report.

The USDA WASDE raised global production by 630,000 bales and is now projected at 115.36 million 480 bales while global consumption is raised 520,000 bales to an 8 year high at 117.03 million bales. But a downward revised global export and overstated to Indian ending stock, raised the global ending stock to 90.27 million bales. The Rest of the World(ROW) ending stock, which excludes China, is forecast to higher side at 49.38 million bales(highest in ten seasons) from 41.87 million bales. (Full Report)

The WASDE report inflicted minor damage however a mediocre export sales report which fell to a marketing year low at 5,600 RB for the week ended July 6 from 196,000 RB in the prior week. The weekly export sales for both marketing year fell to a marketing year low despite lucrative prices as the country’s carry over stock was virtually sold out. All-cotton shipments of 202,700 RB, down from 306,600 RB the prior week, boosted the total for the season to 13.408 million RB. (Full Report)

The market is yet to fall below the strong support level at 66 cents and is currently hovering around those levels. The market is ignoring an empty supply pipeline and behaves as if a 19-20 million US high-grade crop and bumper crops elsewhere were already a done deal. The market may ultimately be right, but there is little or no margin for error, not just in regards to quantity, but also when it comes to quality. For now the path of least resistance is lower, but it all hinges on the crop progress over the coming months.

CHINA MARKET:

The ZCE cotton futures exhibited an upward trend with the benchmark September contract settling, intraday basis, on the higher side 4 out 5 trade session for the week ended July 14.

The benchmark September contract settled at 15,195 yuan/tonne on Friday, higher 175 yuan/tonne over the week. Open Interest, as of July 13, declined 17 percent over the week to 184,400 lots amid rise in price by 1.9 percent to 15,185 yuan/tonne indicating major short covering observed throughout the week.

Meanwhile, the State Reserve auctioned a total of 149,818 tonnes from which it sold 101,553 tonnes for the week ended July 14 touching a weekly turnover at 68 percent. Since the commencement, around 1,881,547 tonnes (11.07 million 170kg bales) were sold from the total offered quantity of 2,768,437 tonnes (16.285 million 170kg bales). (Full Report)



INDIAN MARKET:

The Indian cotton futures persisted downtrend on major long liquidation as forecast of good rainfall pushed bullish speculators off the market.




The benchmark July contract on MCX futures settled lower 3 percent, over the week, to Rs 19,990/bale amid aggressive long liquidation as open interest dropped 16 percent to 4,552 lots (1.14 lakh 170kg bales).

The market gave back all the gains it recorded to touch a near 1 month high at Rs 20,850/bale on July 7 after which it persisted a downtrend to a 10 session low at Rs 19,990/bale on Friday.

Forecast of heavy rainfall throughout the week across major producing regions of Central India diminished most of the fear of re-sowing across sowing belts.

Technical chart showed that prices settled below the Daily Reversal Value(DRV) at Rs 20,523/bale with expectation of sideways volatility and oscillation around DRV. Lower range of Rs 19,650/bale to Rs 19,470/bale could act as a weekly support and breaching of the same could likely persist downside momentum. Resistance is seen at Rs 20,200-20,540/bale for next week. (Technical Report)

DOMESTIC SPOT MARKET:

Spot market witnessed a temporal bullish trend picking off from late last week as benchmark prices rose nearly Rs 300-500/candy, on average, to range between Rs 43,300-44,800/candy.

The bull rally was clearly evident in Central India, with major producing regions vocalizing deficit rainfall since the beginning of the monsoon season.

The Maharashtra(30mm) cotton prices jumped nearly Rs 900/candy to a weekly average at Rs 44,800/candy. Similarly, the Madhya Pradesh(30mm) cotton marginally rose Rs 500/candy to a weekly average of Rs 44,250/candy.

South India cotton prices rose Rs 620/candy to Rs 44,200/candy at Karnataka while surged Rs 900/candy to Rs 44,500/candy at Andhra Pradesh as the bullish sentiment of Central India casted a shadow over spot prices in South India despite bleak trade volume.

Nearly 50 percent of the total producing regions in Maharashtra, Madhya Pradesh and Gujarat, which were the largest producing districts, were included in the deficient rainfall category of the monsoon weather map. The deficient rainfall and phobia of re-sowing claimed dominance in the spot market as the bull turned active with the benchmark cotton(30mm) prices recording a 9 month high level in Maharashtra. (Full Report)

However, as the week of progressed, a ray of hope shone over the anxious farmers as a good spell of rainfall since July 12 over Central India brought a sigh of relief which halted the uptrend in the market as spot prices witnessed a trend reversal wiping of quarter of the gains observed early in the week. Further, the Indian Meteorological Department (IMD) forecasts heavy and widespread rainfall over the weekend across Central India.

The crop planting progress showed significant growth despite deficient rainfall as total area covered as of July 13 reached 91.75 lakh ha, ahead 13 percent from the normal area 5-year average as on date at 81.49 lakh ha and 22 percent from same period in 2016 at 75.32 lakh ha. (Full Report)

Trade activity extended lethargy observed since June 1 as major spinning mills were off trading ring mainly due to the on-going standstill situation in the textile market. Major power loom, weavers, textile associations, across various states, were on a strike agitating against GST levied on the textile industry on factors such as high 18 percent GST on man-made yarn/fabric, garment related job work, etc.

Persistent gloomy sentiment in the yarn market was the other factor which curbed enthusiasm over bales procurement. The situation in the yarn market was such that even tentative rates were not being quoted as power loom and weavers were uninterested in procurement of yarn stock. Textile mills continued their strike in Surat and Tamil Nadu on agitation over GST according to market reports.

The old crop supply was gradually depleting as expected and as per the data collated from market sources, arrivals for the week(July 10-14) dropped 17 percent to 50,300 of 170kg from 60,800 bales in prior week (July 3-7) with the average daily arrivals falling to 10,000 bales from 12,100 bales.

The total supply figures of old crop touched 32.67 million 170kg bales which was 97 percent of the estimated target 32.09 million bales as of June 30 according to Cotton Corporation of India (CCI) and according to our calculations, tentatively 32.90 million bales may have likely arrived as of July 15.

Conclusion:

The Indian cotton market survived the short bull rally which inflicted minor damage bringing the bears back on the driver’s seat. The benchmark Gujarat S6(30mm) cotton prices barely hit the first resistance level at Rs 44,000/candy as the bull rally pushed prices to Rs 43,500/candy, after which it reversed course to one week low at Rs 43,000/candy which is indicating that despite repeated efforts of an uptrend, a major roadblock brings a trend reversal as observed in the price chart.

Large crop prospects for 2017/18 season is heavily weighing on the sentiment. The market expected a temporary uptrend in the form of renewed trade after GST commenced from July 1 however were left disappointed. As per market estimates, stocked bales with ginners/traders were ranging between 3-3.5 million 170kg bales and major spinning mills have stocks lasting for the next 30 days. Even if, the situation in the yarn market returns to normalcy, a temporary uptrend may likely be observed after which large crop prospects will eventually weigh on cotton prices provided weather conditions remain favorable for the next two months.

The spot market is at a discount by 3.5 percent compared to futures market which was a significant factor as at times the market follows the futures market trend.

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