Indian Cotton Weekly: Good Inquiries For Premium Variety; Supply a Question Mark

MUMBAI(Commoditiescontrol): In physical trade, spot prices of premium variety was trading higher hence the weekly averages showed marginal changes during the current week(Feb 12-16).



The weekly average of the benchmark variety cotton in Maharashtra was higher 0.6% to trade at Rs 40,440/candy while the Gujarat S6(30mm) was higher 0.15% to Rs 40,950/candy. The inferior quality cotton declined by nearly 0.5% over the week across major varieties.

The highlight of the week was that active buyers were interested in procuring premium variety cotton(29-30mm) as they wanted to get as much quantity as they could before the market faces shortage as the season progresses. Buyers were mainly procuring to replenish their inventories.

Most of the spinning mills have ample stock to satisfy their consumption needs for the next two months. As per trade sources, mills have an estimate of 50 lakh bales while the remaining 45-50 lakh bales were stocked with ginners/MNCs as of first week of February. These were estimates and there could be a 5% variation in the above mentioned figures.

So the demand side seems to be satisfied hence they resorted to cautious buying amid volatile trend in price in past one month. But supply still is under the radar, as there seems to be confusion with regards to production estimates which has huge discrepancy.

Rewinding to November, the pink boll worm attack on cotton crops of Maharashtra and Telangana led to deterioration of quality and increased the volume of inferior variety cotton. Some bolls were near irrecoverable hence including all those factors, production was trimmed to 350 lakh bales, as per the survey conducted in Maharashtra. (Full Report)

Many previously believed, presently some still believing, that farmers were withholding quite a good volume of premium variety stocks which would be offloaded in January after rates rose to touch Rs 5,500/quintal, for the superior quality produce, with the minimum price dependent on quality.

However, supply did not show signs of improving, clocking an average of daily arrival levels at 1.5 lakh bales. Further, supply gradually was dropping, raising concern over the fact that whether 350 lakh bales production was still achievable.

Scrutinizing this issue, we concluded that, production could be between 321-345 lakh bales provided that supply touches 1.1 lakh bales on a daily basis, beginning from Feb 1, until May 31. The first 15 days of February showed good progress with average daily arrivals at 1.1-1.2 lakh bales. Daily arrivals reached 1.14 lakh bales on February 16. (Full Report)

Cotton crop supply for the holiday shortened week(Feb 12-16) dropped 14.5% to an estimated volume of 4.97 lakh bales compared to 5.81 lakh bales in the prior week(Feb 5-9) and was significantly lower 38% compared to same period last year at 9.37 lakh bales.

On the export side, Indian cotton is still competitive when compared to global cotton market benchmark indexes and US, world’s largest exporter. The Gujarat S6(30mm) traded at Rs 40,750 on Feb 16, equivalent to 81.36 cents/lb and adding other transportation charges takes it to 85.36 cents/lb which was lower 1.7% compared to Cotlook Index A’s last traded price at 86.85 cents/lb on Feb 15.



Hence, routine demand will continue from neighboring countries and we see exports at 60 lakh bales this season. Cotton shipments totaled 21 lakh bales as of December.

INDIAN FUTURES MARKET:

The Indian cotton futures declined for the fourth consecutive week on major roll over o next month March contract.

The benchmark February futures settled at 19,510/bale, recording fresh 10 week low on Friday and ended the week lower 2.5%. Open interest decreased 1,544 lots over the week, to 6,861 lots(1.72 lakh bales of 170kg).

Major market participants have rolled over their position into the next month March contract. Open interest in March rose 1,692 lots over the week amid prices dropping 2.4% to Rs 19,770/bale, recording a fresh 2 month low.

Conclusion:

Supply remains a question mark but the shortage of premium variety cotton will keep prices of those variety supported at Rs 40,000/candy with good upwards potential.

If supply averages a consistent of 1 lakh bales until May 31, then prices will trend between Rs 40,000-45,000/candy. Further, the US cotton market has heavily influenced the global market price trend in the past few years and this season even more.

The US cotton market on a long term has a tremendous upside potential and a sudden bull charge like the one seen during mid-May, when prices skyrocketed to 88 cents/lb and Indian cotton prices touched 44,000/candy on average.

There is a lot of bull potential in the market going forward.

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