MUMBAI (Commoditiescontrol) - As we said in our last week’s forecast - 3rd October, 2015, cotton prices throughout the country did not display any major movement during the week ending 10th October, 2015.
Prices in north Indian markets witnessed a see-saw pattern, forcing us to conclude that the markets were largely volatile. Movement in other Indian markets stalled in the week. After staging an erratic performance, cotton prices in Punjab ended the week at Rs 3,500/maund (37.3kgs each) and in Gujarat S6 cotton closed the week at Rs 32,200/candy (356kgs each).
KEY FACTORS FOR VOLATILITY IN COTTON MARKET
1.Regular New Crop Arrivals
One of the major factors checking major movement in prices is the regular arrivals of new crop in local markets. Current smooth arrivals will ensure ample availability of the fibre in local markets in times to come. As a result, prices are most likely to come under further pressure in coming sessions. All India estimated arrivals this week were at around 2 lakh bales. Market sources say that good quality cotton will start arriving in local markets by October-end.
2.Market Players Uncertain About Market Trend
Clarity of near-term market movement is something that participants depend on to take any position. As it is, there are different version of next crop production in the country. It is difficult to ascertain a particular production figure at present given the different versions in markets. As per the Central government’s first advance estimate for 2015/16 cotton production in the country, around 335 lakh bales (170kgs each) of cotton are pegged in the new season. On the other hand, the government procurement agency, CCI, estimates next year’s production at 350 lakh bales in the year, slightly behind last year’s 355 lakh bales.
Also, there are reports of severe crop damage in north India due to whitefly attack on cotton crop. There are reports making rounds in markets that total cotton production in Punjab will face a shortage of nearly 8 lakh bales due to the pest attack. Also, cotton output in Maharashtra is likely to at 350-400 lakh quintals.
3. Insignificant Movement In Yarn Market
Yarn prices traded more or less steady this week, with 30 single carded in Ichalkaranji quoted in the range of Rs 146-155/kg and 30 carded weft offered in the range of Rs 130-135/kg in Coimbatore, while 30 carded in Gujarat was offered in the range of Rs 160-165/kg. But decent offtake were recorded at the current lower rates. Unless demand at domestic and export front is improved, yarn prices cannot see any revival.
Yarn prices have declined 30 percent this year compared to last year. Exporters have been hit hard due to the constant fall in prices. The slowdown in China, India’s largest export market (33 percent of India’s yarn exports are to China), has impacted sales and shipments.
To add that up, the US, Canada, Japan and 9 other countries are getting their free trade act together. But they don’t include India. The “free trade zone” effectively means Indian exporters will be charged duties on certain things (like textiles) while manufacturers in these countries will not.
4. USDA Slashes Global Demand Forecast
In its latest global supply and demand forecast, the U.S. Department of Agriculture (USDA) has slashed its forecast for global demand in 2015/16 season to 112.27 million bales, down from 113.44 million bales last month. The agriculture department has also raised its prediction for year-end inventories to 106.97 million bales, up from 106.26 million in September.
5.CCI’s Presence In Market
Cotton Corporation of India’s (CCI) auctioning process also lent to prevailing bearish factors to drag prices down in physical markets. Attempting to shift most of the cotton put up sale at its E-auctions, the agency had lowered its floor prices by upto Rs 300-400/candy throughout all the centres.
But then, it received mix response for its cotton this week. It sold 70,900 bales out of 4,02,000 bales offered to sell during the week. As on today, CCI has an unsold cotton stock of around 17 lakh bales.
For the new season, CCI is likely to start procuring cotton from farmers in few parts of the country from 13th October. The other day, Chairman B.K. Mishra said the agency will buy cotton with moisture content of less than 12 percent in the new season.
Current arriving cotton in markets has high moisture content ranging between 18-20 percent.
Market analysts say that CCI’s policy will determine long-term movement in cotton market as its procurement process will lead the prices.
6.Cotton Procurement By Mahafed
The Maharashtra State Cooperative Cotton Growers Federation (Mahafed) has sought permission from Maharashtra government to start procuring cotton from farmers after 15th November, 2015.
7. Forecasts Of Cyclone In Many Parts
The Indian Meteorological Department (IMD) has termed the current month of October - month of cyclone. The withdrawal of southwest monsoons, favorable wind, moisture in the air and certain other supporting phenomena facilitate the formation of cyclones. These are generally available in October.
A day ago, IMD had declared the formation of a monsoon depression in the Arabian Sea. It has put the system under watch for signs for intensification into a deep depression, only a notch below cyclone status, during the next 24 hours.
The Met has located the system as lying 410 km west-southwest of Goa and 630 km south-southwest of Mumbai. It would move initially north-northwestwards and intensify into a deep depression within next 24 hours.
Heavy rainfall has been forecast at many places over coastal Karnataka and Kerala during next 24 hours.
With such reports coming up, likely slight impact on yield of cotton crop in the regions subjected to the adverse weather pattern cannot be ruled out.
8. Recent Export Business Looks Promising
This months export business so far presents a positive picture for Indian cotton sector. Demand from Pakistan and Taiwan seen good, leading to good lifting of cotton from Gujarat.
So far this month, around 90,000-95,000 bales of cotton have been committed for overseas markets, building confidence in market players. Of this, around 30,000 bales are likely to be delivered soon.
In its recent estimate the other day, the International Cotton Advisory Committee (ICAC) said India’s cotton exports may recover 34 percent to 1.2 million tons in 2015/16.
SPECIAL COVERAGE THROUGH THE WEEK
Nearly 77% Of U.S. Cotton Crop Reach Bolls Opening Stage - USDA
The U.S. Department of Agriculture (USDA) in its weekly crop progress report for the week ended 5th October, 2015, stated that nearly 77 percent of U.S cotton crop reached bolls opening stage, higher than 72 percent in the last year same time, but below five year average of 78 percent.
The report showed that 15 percent of the crop is rated poor/very poor compared to 13 percent of last week, and 20 percent a year ago period
(Click Here For Full Report)
World 2015-16 Cotton Forecasts Higher Beginning Stocks
The 2015/16 world cotton forecasts show higher beginning stocks, lower production and consumption, and higher ending stocks relative to last month. Beginning stocks are raised about 900,000 bales, due mainly to a reduction in China’s 2014/15 consumption, which reflects indications of net cotton textile exports that are lower than previously expected (Click Here For Full Report)
Brazil Cotton Index Increases 4.32% In September
Brazilian cotton index in September increased 4.32 percent and closed the month at 2.3552 BRL (0.592 USD) per pound. Trades closed in September involved small batches with small or medium volume and different types. (Click Here For Full Report)
TOP STORIES THROUGH THE WEEK
Indian Govt May Extend Export Incentives To Boost Key Sectors
Government of India may consider an interest subvention scheme this week to provide cheaper credit to exporters and expansion of the Merchandise Exports from India Scheme (MEIS). India’s exports fell 16.17 percent in the first five months of the current fiscal. In the 2015-16 budget, finance ministry had allocated Rs 1,650 crore for the interest subvention scheme for exporters for the year.
CCI To Open 84 Purchasing Centres In Telangana
Cotton Corporation Of India (CCI) is learnt to open 84 purchasing centres in Telangana this season between 10-17 October. Marketing Minister T Harish Rao Directed officials to give identity cards to all cotton farmers before October 10 enabling them to sell their produce at CCI centres.
Lorry Strike Troubles Textile Business
Truckers today went on indefinite strike in Punjab, Haryana and Chandigarh on the call of All India Motor Transport Congress (AIMTC) to protest against the toll system across the region. "We have stopped new booking and delivery of goods as the truckers numbering around two lakh in the region comprising Punjab, Haryana and Chandigarh have joined the nationwide indefinite strike today," AIMTC leader Charan Singh Lohara said here. However, trucks carrying essential items, including vegetables and fruits and medicines are plying as usual, he added. He said the government's proposal for introducing e-toll system is not acceptable as it still requires manual intervention which breeds corruption.
Sachin Pilot Asks Raje Govt To Survey Cotton Crop Damage
Rajasthan Congress Chief Sachin Pilot has asked Raje government to take stock of damage caused by whitefly attack on cotton crops. He said that cotton crop in nearly 40 bigha area was attacked by whitefly in Sriganganagar. In the region, narma cotton worth rs 100 crore were damaged by fly attack.
Survey Of Cotton, Soybean Crops Damage In Telangana
Forest Minister Jogu Ramanna ordered a survey of damage on cotton and soybean crops in Telangana due to supply of spurious seed. Farmers said damage to soyabean crop took place only in fields which were sown with seed supplied by the Hyderabad Agriculture Cooperative Association. They said the crop displayed premature sprouting, which resulted in loss of almost the entire crop.
TDP Demands Hike In Cotton MSP
Telugu Desam Party (TDP) demanded hike in minimum support price (MSP) for cotton to Rs 5,000/100kg from Rs 4,100/100Kg. The party said centre, state government and CCI to initiate measures to enhance MSP. It said the price now paid to farmers is very less compared to cost of cultivation.
Telangana Textile Mills Seek Cut In Interest Rates On Term Loans
Telangana Spinning & Textile Mills Association (TSTMA) wants government to slash interest rates on term loans. The association has sought two-year restriction on term loans and conversions of working capital into working capital term loan with repayment period between 3-5 years.
Yarn Prices Down 30% On Year
Global yarn prices fell around 30 percent this year compared to last year. Fall in yarn prices and glut in international markets have hit Indian textile mills and exporters. Prices of yarn is down by Rs 10 on month-on-month basis and by Rs 30/kg year on year. Above 30 counts yarn is now quoted at Rs 156 against Rs 176 last year.
China May Continue To Buy Cotton From U.S.
Even as China’s import appetite slashed, it may still continue to buy high quality cotton from U.S. to mix with domestic cotton to produce marketable yarn. Also, China’s cotton crop this year is facing issues due to weather problems. U.S has harvested around 5,00,000 bales of high quality cotton so far. Of which, it sold about 3,50,000 bales.
India To Surpass China In Cotton Production
India has beaten China to become the largest producer of cotton in the world. According to the President of Cotton Association of India, Dhiren N. Sheth, India produced 6.51 million tonnes of the fibre against 6.48 million tonnes registered by China in the cotton year 2014-15. The data for the year came from the International Cotton Advisory Committee.
China Launches Yuan Cross-Border Interbank Payment System
China's central bank on Thursday launched the China International Payment System (CIPs), a worldwide payments superhighway for the yuan to facilitate trade settlement and investment dominated in the yuan. CIPS will replace a patchwork of existing networks that make processing renminbi payments a more cumbersome process. It will comprise of two phases, the first of which will look to facilitate cross-border yuan business activities and support trade in goods and services. The second will improve clearing efficiency for direct participants in the yuan market, the People's Bank of China said in a statement on its website.
Interest Subsidy To Textile Mills Likely To End
Government may end interest subsidy provided to textile mills against against investments made by them. Government is aiming to rationalising the technology upgradation fund scheme (TUFS). Under the new scheme, government may offer only capital subsidy for investments. Government provides interest subsidy up to 6 percent, capital subsidy up to 30 percent as support under margin money scheme under TUFS.
Indian Govt Hikes Allocation For MEIS
The government of India has increased the allocations under Merchandise Exports from India Scheme (MEIS) to Rs 21,000 crore from Rs 18,000 crore to give a boost to shipments. Commerce secretary Rita Teaotia announced the increased allocation at a meeting with 27 export promotion councils here on Wednesday. This amount is likely to be available for allocations in the coming week. India's merchandise exports have declined in the last nine months.
Research Centre Develops Cotton Plant Resistant To Whitefly
National Botanical Research Institute (NBRI) developed a cotton variety resistant to whitefly. The centre used a gene derived from vegetable that makes whitefly sterile. The gene controls controls reproduction of the pest.
CCI To Buy Cotton With Moisture Level Below 12%
CCI will buy cotton with moisture content of less than 12 percent, said chairman B.K. Mishra. Currently arriving cotton in markets has high moisture content ranging between 18-20 percent. Mishra said that current prices are around at Rs 2,500/100kg, which is above MSP. So no need for cotton procurement. The agency will first focus on selling its unsold stock of around 17 lakh bales.
Cotton Arrivals In Pakistan Down 25.68% - PCGA
Cotton Arrivals In Pakistan As On 1st Oct, 2015 Fell 25.68% To 30,73,325 Bales Vs 41,35,096 Bales Last Year Same Period, As Per PCGA. Out Of Total Arrivals, 3.07 Million Bales Have Been Converted Into Bales So Far.
Distressed Yarn Prices Worry Bangladeshi Spinning Sector
Yarn prices have been falling this year due to slump in chinese consumption. Slide in consumption will lower prices of raw cotton worldwide further. Also, other countries will break into local yarn markets as they will be able to supply the raw materials at cheaper rates. Currently, widely-consumed 30-carded yarn is selling at $2.60-$2.65/Kg, down from $3.60-$3.65/kg a year earlier.
OUTLOOK FOR NEXT WEEK:
Any movement in cotton market will be entirely dependent on CCI policy. If the agency starts procuring cotton from farmers from next week as per reports, cotton seed oil cake (CoC) and khali will see correction mode.
Also, we at commoditiescontrol.com assume new crop arrivals gather pace from coming week. Until full fledged arrivals of the new crop, the near-term market movement is difficult to asses.
(By Commoditiescontrol Bureau; +91-22-40015532)
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