MUMBAI (Commoditiescontrol) – It is ostensibly difficult for cotton markets to repeat price rally in 2017 given a different market environment emerging during the year. 2016 closed at prices touching a three-year high but could partially recover the falls recorded in 2015 and were halfway below their levels in 2011.
But much more will depend on how China reacts to any inflationary trend. By the end of December, 70% Xinjiang units had basically finished their sales and some are making the final sales to empty their stock before the Spring Festival starting from January last week. Speculative funds will also be an unknown factor.
The fact that cotton auction has been advanced this year which kept mills buying steadily, unlike last year when mill were desperately purchasing caused by a delayed auction that spurred a surprising price rally.
Before cotton auction begins, cotton prices will tend to come under pressure. Yet, supply deficit still prompts price rise in 2017. According to China National Cotton Market Monitoring System (NCMMS), 2016-17 cotton use is 7.62 million ton and production is 4.88 million tons. Adding mill’s inventory, cotton import and 2 million ton expected sales from reserves, China will have a sufficient supply of cotton and the price upside potential is apparently limited.
If Chinese government purchases moderate quantity for reserves, cotton rally will still be more difficult. Thus, the upside potential will depend on the volume of reserve buying.
For 2017, China continues to issue only 894,000 tons of 1% WTO-mandated cotton import quota. However, given a relatively higher domestic price, the correlation between the two markets tends to weaken. With a relative sufficient supply outside China, cotton price could have a chance to go higher in 2017, but so far it depends on the how bearish the negative factors are.
(By Commoditiescontrol Bureau; +91-22-40015522)
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