Indian Cotton Weekly: Good Supply Weighs On Prices, But Bulls Grip Still Intact

MUMBAI(Commoditiescontrol): The spot prices witnessed reversal, snapping their two consecutive weeks of gains, as consistent good supply and slowing demand weighed on the market sentiment.



The weekly average of the benchmark premium variety(30mm) cotton in Maharashtra was lower 1.2% to trade at Rs 40,330/candy while the Gujarat S6(30mm) plunged 2% to Rs 41,700/candy. Other variety cotton prices dropped on similar lines. The difference in prices of Gujarat and Maharashtra were derived as per quality available in the market.

To a surprise supply is the highlight, which is a first especially during the month of March, as post Holi supply gradually depletes but this time around daily arrivals ranged between 1.3-1.5 lakh bales consistently which happens to be above average levels of 1.1-1.2 lakh bales.

Total supply during the current week (March 12-16) rose 6% to an estimated volume of 7 lakh bales compared to 6.62 lakh bales in the prior week(March 5-9) and higher 35% compared to corresponding week last season at 5.19 lakh bales. Demonetization delayed supply progress as farmers withheld stocks and were offloaded during the first quarter of 2017.

Total supply in the current season, as of March 16, reached 23.46 million bales(170kg) which is higher 5.4% compared to corresponding period last season at 22.26 million bales. According to CCI, arrivals have reached 24.61 million bales as of March 12, higher 8.4% from corresponding period last year at 22.71 million bales.

Farmers were offloading in fear of weight loss in the stored bales due to summer heat and dryness. There is still some premium variety cotton in their inventories and eventually should arrive in the market by first week of April.

Trade activity in the entire cotton value chain was slow as market participants were busy closing their annual accounts for FY 2017/18(April-March) ahead of the financial year closing on March 31.

Meanwhile, export prospects have turned somewhat positive as depreciation in USD/INR, rising global prices raised export enquiries in the month of February where around 1 million bales(170kg) have been booked according to trade sources. (Full Report)



Shipments during the month of January lagged 11.4%, year on year basis, to 12.40 lakh bales compared to last year at 14.30 lakh bales. Total bales exported as of January is estimated at 33.50 lakh bales, lower 7% from same period last year 36.01 lakh bales. (Full Report)

However, attractive export basis is likely to show positive growth in exports in the month of February and March. Hence, MNCs, who deal in exports, would renew their bales procurement operation giving a minor boost to prices during the month of April.

The benchmark Gujarat S6(30mm) price, in terms of US cents/lb, last traded at an average of Rs 41,500/candy or 81.49 cents/lb(ex gin) and was lower 12.2% compared to Cotlook Index A at 92.85 cents/lb. While, it was lower nearly 2.4% compared to US cotton futures last traded price at 83.53 cents/lb.

Since season high at 87.83 cents/lb, the Gujarat S6 price has dropped 7.2% to 81.54 cents/lb.

Further, China State Reserve Auction commenced showing a less enthusiastic buying side as sales were average during the first week of auction. The State Reserve has so far sold 113,027 tonnes of cotton from which 113,027 tonnes were sold with a total turnover of 75.32%.

China cotton imports could rise from India, reducing imports from US in retaliation against the import duty imposed on steel & aluminum.

INDIAN FUTURES MARKET:



Technical Ideas(March): Exit long on rise to resistance of 20340-20547- 20783. Further rise will continue on rise and close above 21280.

Expect correction towards DRV-19689. Lower range for the week can be 20103-19423. A fall and close below 19400 can extend the slide. A range bound movement between 19400 and 21280 could be seen to eventually provide the breakout above 21280.

Correction to DRV-19689 can be used for buying with a stop loss of 19400.

Conclusion:

Since the season high at Rs 42,750/candy, prices of Gujarat S6(30mm) have fallen 3% tracing the correction on global market cues and the recent rise in supply. Prices have failed to breach the near term resistance at Rs 43,000/candy while has failed to fall below Rs 40,000/candy.

The rise in exports could provide a minor booster but price is mainly influenced by the bullish sentiment on the US cotton futures. Hence, the bull potential is more compared to bears. Supply will gradually slow down in the month of April hence the bear factor pressuring prices will vanish, giving bulls room to push prices higher.

A long term resistance is placed on cotton at Rs 45,000/candy but that is nearly Rs 3,000/candy and that could happen in the fag end of the season. Until prices don’t breach the near term resistance.

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