Weekly: Near-Term Outlook Positive For Cotton On Supportive Fundamentals

MUMBAI(Commoditiescontrol): Cotton S6-Gujarat (30mm) prices continued upward march for the fourth straight week (Apr 30-May 4) on persistent good buying from mills and exporters, strong international market and tight availability of premium fibre in domestic market.

The weekly average price of the benchmark premium variety (30mm) cotton in Maharashtra rose 0.4% to trade at Rs 41,440/candy, while the Gujarat S6 (30mm) increased 0.5% to Rs 42,580/candy. The difference in prices of Gujarat and Maharashtra were mainly due to quality.

Cotton prices in Gujarat during the month of April jumped up 2.65% and maintained the bullish stance. MNCs continued to be among the major buyers, however mills were not much left behind as they were busy in procuring premium quality cotton to meet demand for the rest of season.

Demand in cotton yarn was said to be good, especially in course count (Fardar cotton is used in it), but the case was not encouraging in medium to higher count mainly due to average demand amid liquidity.cash crunch.

The export sector related to textile industry benefitted more this season on supportive USD/INR which depreciated to more than 1 year low breaching the key 67 level and last traded at 66.80.

Further, the Indian cotton prices were very lucrative when compared to other international competitors. As per trade sources, the maximum export offer, for Gujarat S6(29mm+) was at 85 cents/lb CIF. It was lower 7.3% compared to Cotlook Index A, which is a basket of cotton CIF offers of major exporting countries, at 93.70 cents/lb.

On the supply side, cotton arrivals averaged at 0.68 lakh bales this week, down from 0.76 lakh bales a week ago. The slow arrivals were attributed to slow selling amid expectations of better returns.

Total new crop arrivals, since Oct 1, have reached 28.61 million bales (89.4% of total estimated production at 32 million bales), up 4.30% from 27.43 million bales arrived during the same period last year.

The spread between cotton futures (MCX-May) and spot (S6-Gujarat) has narrowed over the past weeks and there is no opportunity of arbitrage at present level (see the chart).

According to market experts, "Near term rise in cotton prices can't be ruled out since demand is good and international cues are strong, but one should try to exit at the higher level as stock is sufficient with sowing to start in central and south India with monsoon onset."

INDIAN FUTURES MARKET:

Contrary to spot market, May cotton futures on MCX dropped 0.52% to settle at 20,750 per bale (170kg each) this week. The contract during the week ranged between Rs 20,510-20,860 per bale. The volume was almost flat during the week, but volume was on the decline along with price indicating indecisive with volatility ahead.

Cotton stocks as on April 30 on the MCX warehouses stood at 147,700 bales, up 8.44% from 136,200 bale same period a month ago.



Technical Ideas(March): MCX Cotton Bales May 2018: Breakout Above 21280 Is Essential

Resistance is at 20997-21567.

On breakout and close above 21280 expect a rally to 22272.

Traders by chance long and holding the same can maintain the stop loss of 20350.

Breakout and close above 21280 is essential to set a momentum based rally.

Conclusion:

Cotton prices in the domestic market have continued to rise steadily, supported by good domestic, export demand followed by strong cues from international market.

The premium variety cotton will maintain an upward trajectory and could crawl to touch the resistance level of Rs 43,000-43,500/candy as the season ends, observing the present factors in the market.

A timely monsoon onset along with ample stock in the country to met domestic and exoprt demand is expected to keep upside limited.

(By Commoditiescontrol Bureau; +91-22-40015533)