MUMBAI (Commoditiescontrol) – Cotton declined over 2 percent during the week ended Saturday as mills and spinners turned cautious followed by better prospects of current crop, poor off take in yarn and weak global market. Cotton Gujarat Shankar-6 was last traded at Rs 46,750/candy (356kg each) against Rs 47,750 last week.
Mills and spinners are buying cotton only as per their requirements as outlook for new crop has turned much better after good monsoon in the country and favorable climate for plant growth. According to reports received from various states the cotton crop is in excellent condition, except in some parts of Gujarat, where pink bollworm traces has been found, but it is below economic threshold limit (ETL).
Further the cotton has shown remarkable growth in last one month as area was 22 percent behind at 67.89 lakh hectares on July 7, which has now narrowed to 7.88 percent. According to latest sowing data released by agriculture ministry cotton as on August 18 has been planted in 101.54 lakh hectares versus 110.22 lakh hectares. Due to above normal rains in the country, cotton acreage has been constantly improving in July and August.
At the same time cotton prices have started to fall after reaching a record high in July 2016. Prices on the Multi Commodity Exchange (MCX) have corrected about 13.99 per cent after touching a high of ₹23,650 per bale (of 170 kg each) on reports of improved acreage due to adequate rains in Gujarat and Maharashtra.
Moreover, arrivals of the new season cotton crop is likely to start from September-end from North-India which may ease prices further. Similarly, improved US weather and a bearish world supply and demand report by the US government is pressurizing the ICE cotton futures.
Domestic cotton prices surged about 40 per cent to Rs 23,650 per bale in mid-July mainly on lower stocks for quality cotton due to below-normal rainfall in the last two seasons.
Meanwhile poor offtake in yarn and poor realization to mills has left them in dismay and conditions are more stressful for small-to-medium size who have not maintained sufficient inventory as they are forced to source cotton at higher prices. Mills with sound financial had moved towards overseas stock for their requirements as it was cheaper than domestic and easily available.
According to an official with mill based in Coimbatore, the yarn market has seen no major demand since past weeks, whereas spinners and millers are facing heavy losses. Any major fluctuation in cotton prices brings about significant impact on the operation margin of the mills. As per our records only 30-40 percent of the total cotton yarn production was being sold throughout the week. We have reached to such a point that we are even unable to make payment to our labourers.
International Market Scenario
ICE cotton futures dropped 3.70 percent this week due to increased optimism about crop amid favorable weather followed by position liquidation by bulls after bearish USDA supply-demand report.
Further speculators retreated from their largest net long position in cotton contracts on ICE Futures U.S in 8-1/2 years in the week ended Aug. 16, U.S. government data showed on Friday.
As per latest USDA report, world cotton production for 2016-17 will increase by 1 million tonnes (mt) or 4 per cent compared to last year’s production, while consumption is projected to remain stable as compared to last year’s data.
Production for the US and Pakistan is forecast to increase by more than 23 percent and 14 percent, respectively, in 2016-17.
Cotton at ZCE futures dropped second straight week as demand has reduced after extension of state reserve auction up to September 30. The benchmark January cotton fell nearly 1 percent.
China has liquidated around 18.44 lakh tonnes so far this season, which is 90.29 percent of total cotton quantity offered for the sale. During the week state reserve has sold 72,428 tonnes, down 21.90 percent from a week ago. China has planned to sell 20 lakh tonnes of cotton during the current season, which started from May 3.
China, the world's top textile exporter, imported 94,800 tonnes of cotton in July, down 10.2 percent year-on-year, the China Cotton Association said late on Thursday.
Cotton imports fell 49.5 percent to 525,000 tonnes in the first seven months of this year, it said, citing customs data.
China's cotton imports have plunged this year as Beijing issued fewer low-tariff import quotas than in previous years, while low domestic prices have also made imports less attractive.
Price Outlook
Cotton prices are expected to trade in a negative bias during the coming week due to lower domestic demand as South Indian mills have reduced their capacity by 15-20 percent as the harvesting season is approaching.
Moreover, the forecast of lower domestic consumption of cotton and exports of cotton yarn for next season may pressurize prices further. However, tight supply, weather irregularities and pest attacks may limit the downside if they play any part in coming months.
(By Commoditiescontrol Bureau; +91-22-40015533)
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