MUMBAI(Commoditiescontrol): In physical trade, it was a one way bull streak as spot prices ended on a positive note with weekly averages of benchmark varieties marginally rising 0.5-0.8% during the week Jan 8-12.
Spot market continued to gain influence from the explosive bull run on the US cotton futures market for the seventh consecutive week. Since the US cotton market bull run commenced on November 14, spot prices rose 12-15% across major markets.
Earlier during November, MNCs who deal in exports were the major active buyers to replenish their inventories and meet slight delayed commitments post RCM implementation. Further, when the fog over the actual loss over pink bollworm(PBW) attack over Maharashtra was gradually lifting resulting in downward revision to production estimates to 35 million bales(170kg), some domestic and major international buyers shifted to US cotton market to source their requirements.
Buying diverted mainly due to degradation in quality of premium variety cotton(29mm-31mm) which raised US exports estimates to more than 19.2 million bales of 170kg(15 million bales of 480lb). Deep pocketed hedge funds raised their net long position amid rise in hedged trade shorts against outstanding mill on-call commitments. (Full Report)
This brought a massive surge on the US cotton future which touched nearly 8 month high on Jan 12. Tracing the bullish cues, the Indian cotton market rose 12-15% since November 14, to reach a 4 month high last evening.
However fundamentals suggest a that the Indian market is in a comfortable spot as arrivals pace, despite being slightly sluggish, is on the right track. (Full Report)
Cotton crop supply for the week(Jan 8-12) marginally rose 8% to an estimated volume of 7.93 lakh bales compared to 7.345 lakh bales in the prior week(Jan 1-5) however was marginally lower 7.3% compared to same period last year at 7.39 lakh bales. Daily average arrivals were recorded 1.6 lakh bales compared to last week at 1.5 lakh bales.
Total arrivals collated from major markets, since Oct 1, has reached 12.5 million bales(36% of total estimated production at 35 million bales), up 18% from same period in the previous year at 10.9 million bales. As per CCI, total arrivals as of January 10, reached 12.8 million bales, since CCI tracks other small market, hence their arrivals were ahead from our data. (Full Report)
The most awaited USDA WASDE Jan report released last evening at 22:30 IST which was disappointing with only minor revision in the balance sheet of major markets. Indian production witnessed minor 0.5% downward revision to 37.5 million bales bringing ending stock down to 16.6 million bales from 16.9 million bales, while other figures were unchanged. (Full Report)
The carryover stock and production figures were overstated according to our estimates, production is seen at 35 million bales. Disappointing WASDE report brought major correction on the ICE cotton futures market where the benchmark March plunged 3.5% from intraday highs of 84.65 cents/lb to settle at 81.70 cent/lb.
INDIAN FUTURES MARKET:
The Indian cotton futures witnessed massive bull trend with prices recording new contract highs.
The benchmark January futures settled at 20,720/bale on Friday, higher 2.4% over the week. Open interest decreased 16.5%, over the week, at 7,077 lots(1.77 lakh bales of 170kg).
The next month February futures settled at Rs 20,960/bale, higher 2.5% over the week. Open interest increased 92% to 5,072 lots(1.27 lakh bales of 170kg).
Various traders may have rolled over their position to next month February contract.
Technical Ideas(January): Resistance is seen at higher range of 21,112-21,170. Bandwidth indicator is rising and if breakout/close above 21,170 is witnessed then expect a rally towards 24,000 in due course of time with volatility.
For the time being resistance is likely to be witnessed and needs another round of strong breakout for prices to sustain.
Alternatively, minor correction to 20640-20110- 18970 could be seen on account for profit booking. Consolidation needs to happen once again at lower levels to rally towards 24000.
Traders long and holding the same can maintain a stop loss at 19,600 as higher level could attract resistance or profit booking.
Conclusion:
As previously mentioned in our weekly report that market has a good chance of breaching the Rs 43,000/candy level (86.33 cents/lb) and this happened last evening tracing the speculative bull run on the US cotton market. However, the massive rise is due for correction and the first pace of which is seen in Saturday’s trading session.
From the fundamental perspective, the Indian cotton market is in a comfortable spot for both demand and supply. However, reality is that the US cotton market has become the benchmark for the global cotton market, influencing the price trend every now and then.
The US cotton market is witnessing correction from the speculative bull run however the large trade shorts is providing a massive support at lower levels. The US cotton market is the key indicator to the price trend going forward! (Full Report)
Indian supply continued to average around 1.6-1.7 lakh bales still below normal levels of 1.8-2.2 lakh bales. If at all the supply rises to historical normal levels then it could limit upside in the cotton market. Hence, trade range is now placed between Rs 40,000-45,000/candy until the next massive move.
(By Commoditiescontrol Bureau; +91-22-40015534)