Weekly Report: India Cotton Prices Seen Moving Sideways Despite Strong Demand

MUMBAI (Commoditiescontrol) - Cotton prices traveled sideways for most of the sessions in the week ending 6th June, 2015, as estimated in the last week’s report (30th May,2015). Demand from domestic market players, including textile mills, spinners, ginners, private traders and stockists, was strong. However, prices remained sideways to upside as they are already hovering at higher level. Demand in yarn halted at higher rates, but then the current level had attracted comparatively better demand.

Prolonged supply crunch across the country also forced mills and spinners to remain active. According to trade sources, private traders, farmers and stockists are left with very limited stock. All India cotton arrivals as on 6th June, 2015 is estimated at 353.30 lakh bales (170kg each), according to market sources.

The Cotton Corporation of India (CCI) has sold nearly 3,17,400 bales of cotton throughout the week at its E-auction program. Domestic demand in the fibre was strong, hence the agency could sell such huge volume even as the bid prices rose Rs. 100-800/candy (356kg each) in various centres.



Adding to the momentum, the International Cotton Advisory Committee (ICAC) has raised its forecast for world cotton prices in 2015-16 by 10 cents to 72 cents/pound as it hiked global consumption to a six-year high considering expected improvements in India and Pakistan markets. The ICAC estimates, which had last month implied stocks-to-use ratio for world cotton, excluding China, holding at some 56 percent, now forecast a drop below 53 percent. It raised its estimate for world cotton consumption in 2015-16 by 460,000 tonnes to 24.93 million tonnes, the highest since 2009-10. Use in China is expected at 7.7 million tonnes, supported by a drop in prices from an average of 139 cent/pound in 2013-14 to a little under 100 cents/pound in the first five months of this year. Consumption in India is projected up 3 percent to 5.4 million tonnes in 2015-16. It reduced its forecast for world ending stock by 440,000 tonnes to 20.79 million tonnes. That would represent a drop of more than 1.0 million tonnes year on year, and the first decline in stocks in five seasons.

That apart, the Indian agriculture ministry has released kharif sowing area of various agricultural commodities. According to the ministry’s data, cotton has been sown in around 9.32 lakh hectares as on 5th June, 2015 compared to 10.90 ha last year same time. Meanwhile, the Maharashtra government has set cotton sowing target for 2015-16 for major cotton belts in the state at around 35 lakh hectares compared to target of around 47 lakh hectares last year.

State	Area Sown As On Date (Lakh Ha)
	As On June 4, 2015			Last Year
	BT Cotton	Non BT Cotton	Total
Punjab	2.95	0.16	3.11	3.82
Haryana	4.95	0.55	5.5	6.48
Rajasthan	0.35	0.15	0.5	0.6
Uttar Pradesh	0	0.21	0.21	0
Total	8.25	1.07	9.32	10.9

Further, the Indian Meteorological Department’s (IMD) revising its rainfall forecast for the this year to 88 percent of the long-period average (LPA) from 93 percent earlier, joined hands with other factors to pull prices higher across the country. LPA below 90 percent is considered as drought. As per the forecast, north-west region including Delhi NCR, Haryana, Western Uttar Pradesh and Rajasthan the most. Monsoon arrived yesterday over Kerala coast, after a delay of around 4-5 days.



North India Left With Little Cotton Stock; But CCI Sale Policy To Lead Prices (Special Coverage)
The recent gains in cotton prices in most of north India was driven by lower stock against strong demand. But further move in prices may be led by the CCI’s sale policy. Prices touched season’s high yet again on 1st June, 2015, hovering in the range of Rs. 3,880-3,910/maund (37.3kg each) in Buchu of Punjab. According to market estimates, north India’s total cotton stock is at around 2.25-2.50 lakh bales (170kg each), including 1.3 lakh bales with CCI. Last year same period, stock was at around 3.5 lakh bales in north India. Fateh Chand Sharma, a Bathinda-based trader said that stock is very limited as most of the stock has already been sold out. Private ginners hardly have 1-1.25 lakh bales cotton left with them, while the CCI have only 1.30 lakh bales left in north India. He said that the CCI did not purchase large quantity from north India as kapas (narma) prices were at higher than the minimum support price (MSP). Most of the cotton was sold in open markets and larger chunk of the produce has already been sold out. (Click Here To Read The Full Story).

FACTORS CONTRADICTING POSITIVES

However, India's private weather forecaster Skymet on Friday ruled out chances of a possible drought this year, rejecting the IMD’s predictions made over the last few days. Skymet has said that monsoon this year will be normal to good as the Indian ocean dipole (IOD) phenomenon counters an El Nino weather event. It forecasts this year’s rains at 102 percent of the long term average compared to IMD’s 88 percent.

Also, Finance Minister Arun Jaitley dismissed concerns of the first drought in six years and called the emerging concerns “misplaced”. In case of dangers of inflation or any kind of distressed situation, the government can resort to last year’s strategy, when it released extra stocks of rice and wheat from state warehouses to offset the impact of poor monsoon rains, the minister said.

Cotton Industry To Face Challenges In The Next Season Too: Market Talk (Special Coverage)
Contrary to what the current situation looks like, a lot of market experts are of the opinion that the Indian cotton industry is most likely to see uncertainties in the next season also. To get a more vivid picture, commoditiescontrol.com has interviewed some of the veteran players in the market. They assert that the industry is most possibly to face several challenges due to large carry-over stock in the next season, along with estimations of 370-380 lakh bales of production despite predictions of weak monsoon and sluggish cotton exports.

Though, the soft commodity is moving upward for the last one month, with kapas (raw cotton) being sold as high as Rs. 4,700/100kg. But then, farmers had already sold most of their produce in markets at lower rates. While, ginning, pressing mills and spinning mills faced issues with regards to weak demand. Additionally, large global cotton stock may also pressurize market’s sentiment in international markets. (Click Here To Read Full Story)

Stock Position At Exchange Warehouses
Cotton stocks at National Commodity and Derivatives Exchange (NCDEX) accredited warehouses reduced to 300 bales as on 5th June, 2015. Cotton stocks at Multi Commodity Exchange (MCX) accredited warehouses stood at 97,600 as on 6th June, 2015, down 4,500 bales from 1,02,100 bales on 28th May.

NCDEX, MCX Weekly Update
MCX Bales Weekly Technical Update. Click Here


NCDEX Kapas Weekly Technical Update. Click Here


NCDEX CoC Weekly Technical Update. Click Here


U.S. Market Through The Week
ICE cotton edged lower this week in volatile trade amid strong dollar and fund index roll over. The most-active July cotton contract lost 0.52 percent to close at 64.01 cents/pound in the week ending Friday. The contract hovered in the range of 63.33 to 65.95 cents/pound during the week.

The market got some support after U.S net export sales report published on Thursday that showed increment of 74 percent from the four week average. U.S net export sales for the current crop reached 106,600 bales (480lb each). This raised expectations that the USDA would boost its estimate for total U.S. exports in the 2014-15 crop year from 10.7 million bales. Cotton prices were also weighed by rising stocks. Certificated cotton stocks deliverable as of 4th June totaled 124,606 bales (480lb each), up 15 percent from the previous week.

U.S cotton planting as on 31st May, 2015 was projected lower at 61 percent compared to 72 percent a year ago same period , USDA said in its weekly report on 1st June, 2015. Planting in Texas, which accounts for 40 percent of U.S cotton production, was estimated at 46 percent against 29 percent a week ago and down from 70 percent of 5 year average. Cotton squaring was estimated at 3 percent as on May 31, down from 5 percent last year. Five year average cotton squaring is 6 percent.

According to the latest U.S. Commodity Futures Trading Commission (CFTC) report, cotton speculators on ICE exchange have cut net long positions by 6,700 contracts to 14,708 in week to 2nd June.



TOP STORIES THROUGH THE WEEK

Govt Confident In Tackling Deficient Monsoon: Radha Mohan Singh
Indian Agriculture Minister Radha Mohan Singh on Wednesday said that the government is confident over tackling deficient monsoon and minimising production losses along with all the possible impact on overall economy. He also said that the government is working on bringing a new crop insurance policy by the end of this year to protect farmers' interest. The minister said this at a press conference organised to highlight the Agriculture Ministry's one year achievement.

NABARD Temporarily Bans Subsidy For Godown,Cold Storages
The National Agricultural and Rural Development Bank (NABARD) has temporarily banned sanction of subsidy for new godown and cold storage projects. The step has been taken after the Agriculture Ministry directing the bank to ban subsidy all on such projects. However, the ban will not be effective for north-east states and SC/ST applicants. The ministry of agriculture had launched Agriculture Marketing Infrastructure Sub Scheme (AMI) under NABARD’s Integrated Scheme for Agriculture Marketing (ISAM) to develop agriculture marketing infrastructures like godown, cold storages etc. in the country. According to Mr. Lalit Maurya, Deputy General Manager of NABARD, the scheme has been banned temporarily after the direction from the ministry. He said that the decision to lift the ban will be taken by the ministry itself. The Central government had set a target to develop around 4,000 agri infrastructure projects under AMI during the current 12th five year plan (2012-2017). Nearly Rs. 4,000 crore was allocated for the purpose. According to sources in NABARD, more than 2,500 projects would be affected with this ban.

Seed Companies Asked To Reduce Prices By Rs. 100/Packet
Maharashtra government has asked seed companies to reduce seed prices by Rs. 100/packet in view of drought conditions in the state. On the contrary, companies were expecting a hike in BT cotton rates ahead of the current kharif season. The state government also intends to convert this into a legal decision with provision for punishment in case of violation. As per the government, the companies will not be allowed to sell seeds if they fail to comply with the order. Seed companies are unhappy with the decision and want the government to at least maintain prices at Rs. 930/packet (450gm each). Maharashtra is the biggest seller of BT cotton seeds in the country.

SISPA Urges Govt To Reduce VAT On Cotton
South India Spinners Association (SISPA) requested Tamil Nadu Chief Minister J Jayalalithaa To Cut Value Added Tax (VAT) On Cotton, Cotton Yarn And Man-Made Yarn To 2 Percent Current 5 Percent. Tamil Nadu Contributes For Around 55 Percent Of The Total Spinning Capacity In India. Sale Of Cotton Yarn In TN Attracts Five Per Cent Sales Tax, Whereas It Is Only Two Per Cent For Yarn From Neighbouring States. Meanwhile, the Tirupur Exporters' Association (TEA) has presented a wish list to the CM to be announced in the upcoming textile policy. The association said that the state government has assured that various requests of the body would be addressed in the policy. TEA's wish list include announcement of new textile policy immediately, constitution of textile board to have a single window clearance. It also seeks a separate state export policy in line with foreign trade policy to give a focused approach for export development of the state.

Tamil Nadu Govt Lifts Power Cut On HT Industries
The Chief Minister of Tamil Nadu J. Jayalalithaa on 1st June, 2015 rolled out a press release vide Press No. 253, stating that 20 percent power cut on High Tension (HT) Industries and commercial services during normal hours and 90 percent peak hour power control norm between 6-10 P.M. (evening peak hours), will be withdrawn. The power cuts will be lifted from 5th June through 30th September, 2015. However, evening peak hours restriction is likely to be revised on 30th September.

Global Organic Cotton Production Rises 10 Percent
Global organic cotton market recorded 10 percent rise in production from 2012-13 to 2013-14, as per Textile Exchange’s annual report. The growth is largely attributed to increased market demand and collaborations between farmers and brands. the market registered three years of decline prior to this.

APTMA Urges Govt To Cut Import Duty On PSF
All Pakistan Textile Mills Association (APTMA) has requested government to cut import duty on Polyester Staple Fibre (PSF) to zero. It said that all imports of specialty fibres including acrylic be allowed at zero per cent import duty enabling the industry to diversify its product base. It added that imports of viscose staple fibre, which is not being manufactured locally, should also be allowed at zero per cent customs duty.

Western Haryana To Be Developed As A Textile Hub
Haryana Chief Minister Manohar Lal Khattar said that Western Haryana would be soon developed as a textile hub. With this, the state govt aims to generate maximum employment opportunities for youth and ensuring textile export in the upcoming new industrial policy.

U.S. Net Export Sales Up 74 Percent
U.S. net export sales for the current crop reached 106,600 bales of cotton last week, up 74 percent from the prior four-week average, according to the USDA. This raised expectations that the USDA would boost its estimate for total U.S. exports in the 2014-15 crop year from 10.7 million bales.

OUTLOOK FOR NEXT WEEK
Cotton may see gain of Rs. 300-500/candy during the course of next week tracking support from a stronger U.S. dollar coupled with rising crude oil prices. Higher crude oil prices pull raw material prices higher. Various predictions about this year's monsoon in the country has made sellers stay sidelined, which may result in extended supply crunch. However, if the monsoon progresses well, market sentiments may be dampened.

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