Indian Cotton Weekly: Price Once Again Challenges Resistance Levels

MUMBAI(Commoditiescontrol): In physical trade, spot prices persisted uptrend for the third consecutive week with weekly averages of benchmark varieties rising by 1% to 2% during the week Jan 15-19.

The market was witnessing temporal correction from Jan 13 onwards which merely lasted until Jan 16 after which rally resumed throughout the week tracing the rebound on the US cotton futures market.

Trade activity adjusted according to the movement recorded on the ICE US cotton futures. There was good buying from MNCs, who deal in exports, across North India, Gujarat and Maharashtra, mainly for the premium variety cotton(29mm+), MIC 3.4+ and RD above 75.

Spinning mills renewed their buying enquiries earlier in the week however were pushed to the sideline when the rally resumed in the market. The 2016/17 season left a scar on the unorganized textile sector which reeled under problems of Demonetization and GST. This dropped cotton consumption to 289 lakh bales(170kg) for the 2016/17 season, falling to a 4 year low. (Full Report)

The balance sheet is thus revised with higher ending stock at 44 lakh bales for 2016/17. From a balance sheet perspective, the Indian cotton market is in a comfortable spot but in reality it is not trending on fundamentals. The market has gained influence from trend spotted on the US cotton market and accordingly adjusted trade activity in the past two months.



On the supply side, since it was a holiday shortened week, arrivals were sluggish earlier in the week on occasion of Makar Sankranti and Pongal.

Cotton crop supply for the week(Jan 15-19) dropped 15% to an estimated volume of 6.74 lakh bales compared to 7.93 lakh bales in the prior week(Jan 8-12) and was marginally lower 1.5% compared to same period last year at 6.84 lakh bales. Daily average arrivals were at 1.4 lakh bales compared to last week at 1.6 lakh bales.

Total arrivals collated from major markets, since Oct 1, has reached 13.2 million bales(37.7% of total estimated production at 35 million bales), up 14% from same period in the previous year at 11.5 million bales.

Some signs of tight selling from farmer persisted in anticipation of offloading at higher rates upwards of Rs 5,500/quintal. The prevalent raw cotton rate ranged between Rs 4,200-5,500/quintal.

INDIAN FUTURES MARKET:

The Indian cotton futures persists uptrend for the third consecutive week with prices recording new contract highs.

The benchmark February futures settled at 21,170/bale on Friday, higher 1% over the week. Open interest increased 30%, over the week, at 6,603 lots(1.65 lakh bales of 170kg).

Traders were rolling over their positions from the front month January contract which settled at Rs 20,950/bale, up 1.1% from previous week. Open interest decreased 35%, over the week, to 4,606 lots(1.15 lakh bales of 170kg).



Technical Ideas(February): Trend line breakout is being witnessed in C2 chart but supply zone hangs overhead. Traders long may use rise to resistance/supply zone to take profits.

The supply zone is at 21190-21780 while Resistance will be at 21393-21963. A breakout above 21790 on closing can show a rally.

Broadly till next breakout is not being witnessed higher range can be to take profits.

Traders long and holding the same can maintain a stop loss at 20,200 as higher level could attract resistance or profit booking.

Conclusion:

The market witnessed temporal correction earlier in the week as it nearly gave back 75% of the prior week(Jan 8-12) gains however mid-week rally wiped nearly 25% of those gains.

The Gujarat S6(30mm), benchmark of our analysis, price traded at Rs 42,600/candy(ex-gin 85.29 cents/lb) as of Jan 19 reaching the same levels last seen on Jan 12, the day when cotton price witnessed 3% intraday surge.

The market is not trending on fundamentals but only influenced by the trend on the US cotton futures. If it continues to trace the trend of the US cotton futures, then prices have a potential to breach the Rs 43,000/candy level once again. Hence, trade range is now placed between Rs 40,000-45,000/candy until the next massive move.

The US cotton market is finding tremendous support at 78 cents/lb attributed to the large trade short position amid large on-call position. This has kept the deep pocketed hedge funds and speculators on the bullish side and hence they have raised a large long position since November 14. The US cotton market is the key indicator to the price trend going forward! (Full Report)



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