MUMBAI (Commoditiescontrol) – Domestic cotton market and Indian futures ended the week on a bearish tone on drastic improvement in supply coupled with modest demand. ICE futures ended the week on a slight easy tone. ZCE futures was marginally down on long liquidation by market participants on Friday.
Let’s first look at how the global market faired throughout the week.
US MARKET:
The cotton market extended an easy trend as the benchmark March contract slipped by nearly 2 percent during the week on sellers gaining more control over the market amid stronger dollar.
The March contract settled lower at 71.25 cents/lb on Friday compared to same day in the previous week at 72.32 cents/lb.
The December notice period, which began on November 23, has quickly turned into a non-event since there were just 1,349 contracts open before Wednesday’s session and we estimate that this number has since dropped to below 1,000 contracts or less than 100,000 bales. So far only 5,200 bales have been tendered and regardless of what happen during the final days of December, the volume involved won’t be anything to get excited about.
With December fixations out of the way, the market seems to be ready for a pullback, said Plexus Cotton in a report.
The USDA Weekly export sales released on Friday, November 25 showed sales of 254,800 Running Bales (RB) up by nearly 28 percent from previous week at 214,400 RB. (Full Report)
CHINA MARKET:
Chinese market extended a mixed tone as the most active January contract settled down by 1.03 percent at 15,780 yuan/tonne compared to previous week on Friday at 15,945 yuan/tonne.
Open interest witnessed a sharp decline of 23.41 percent at 163,352 compared to previous week at 212,384. Volume witnessed a similar trend declining from 338,838 to 259,082 indicating liquidation in the market.
The January contract touched a season high on Tuesday as the contract settled at 16,345 yuan/tonne. It traded within the range 16,100-16,500 yuan/tonne during the day.
On the other hand, China State Reserve is expected to resume cotton auction from March 6, 2017 (Full Story)
INDIAN MARKET:
The Indian cotton futures extended a bearish sentiment influenced by the domestic market.
The benchmark December contract declined by 2 percent settling at Rs.19,020/bale(170kg each) on Friday, November 25, compared to same day in the previous week at Rs 19,360/bale.
Speculators were exiting their long position as they anticipate supply to weigh on the spot price in the market.
Open Interest declined by 7.34 percent from 5052 to 4681 whereas market volume was marginally up from 1513 to 1594.
DOMESTIC SPOT MARKET
Spot cotton in the domestic market was inclined to a bearish trend throughout the entire week on account lackluster demand amid slow improving supply.
Mills and exporters are buying hand-to-mouth as they anticipate prices to decline ahead with expectations of supply to normalize once the liquidity issue gets resolved.
Further there are reports that Pakistan government is unlikely to extend import permits for cotton from India, which is likely to push down prices. Pakistan was the largest buyer of India cotton with around 23-24 lakh bales last season 2015-16 (Oct-Sept). However official notification from Pakistan government has not yet released about import permit yet so far. A meeting was held on next Wednesday and more details are awaited about import permit.
Cotton market slipped by 2-4 percent or Rs 800-1200/candy across major markets of India compared to last week.
The average price of cotton (Shankar 6 30mm) in Gujarat declined 2.61 percent from Rs 40,100/candy on November 18 to Rs 39,050/candy on November 25.
Whereas, nearly plunged 4 percent in Maharashtra with the average price of 30MM Nagpur Line Cotton pegged at Rs 38,900/candy on November 25 compared to Rs 40,250/candy on November 18.
Dull demand from spinning mills at the trending price levels was the major factor which brought about a reversal in the rallying trend in the market. Spinning mills opted to stay on the sideline as they were not interested in purchasing cotton at such high price due to lack of viability factor.
Adding to the woes was the gloomy yarn market which has zero movement since November 8. The market has come to a standstill as the liquidity crunch affected the trade significantly. The textile and clothing sectors are disturbed by the sudden decision to demonetize high value notes. If the current status prolongs, the situation may turn precarious and yarn business will have to take a long holiday.
Spinning mills have cut down their operation capping it to a meager 30 percent out of the total capacity as they opted to wait and watch for the situation to improve in the market.
The positive factor was the improving supply in the market as rays of normalcy is slowly shining over the country. Cotton arrival increased by nearly 64 percent as the total arrival between 21-25 November was at 5.75 lakh bales compared to previous week 14-18 November at 3.51 lakh bales. (Full Report)
The solution for liquidity crunch was gradually hitting the market as cheque payment was the preferred mode of payment in the value chain and the effect was being reflected on the price as improving supply also pressured price in the market. However, the solution has not yet influenced the entire market as reluctance was witnessed in some farmers in the lower level and the yarn market too. For the market to fully switch to a different mode of payment would take quite a while.
On the other hand, export prospects were shining a bright light as the depreciating rupee against US Dollar since November 8 was export more lucrative in the world market. On Thursday, the rupee touched all time high of 68.87 on account of stronger US Dollar and other factors being the heavy outflow of foreign portfolio investors (FPI) worth Rs 28,919 crore as per NSDL data.
Traders have contracted export of 2 million bales for delivery between November and January, of which 1.3 million to be delivered by December. However, only 300,000 could be shipped until and about 10 lakh bales have been delayed due to shortage of supply. Further, mills have bagged orders for yarns until mid-January. So, both the commitments to be met, which will explode demand for cotton with immediate effect.
Whereas, the declining cotton price in the market was also supporting as such positive factors can bring the country back into the world market provided the short term domestic issues are resolved. (Full Report)
Rupee gained 28 paisa or 0.40% to 68.47 to the dollar at close on Friday. The Dollar Index settled at 101.50 on Friday.
Conclusion:
Cotton price may be inclined to a more bearish trend as supply increases however some mills will enter the market this week bringing about a minor oscillation in price. Demand from exporters will be expected as the price is very lucrative supporting the price in the market.
(By Commoditiescontrol Bureau; +91-22-40015534)