MUMBAI (Commoditiescontrol) – Major cotton markets were on a bullish trend this week, although benchmark ended low ending the week. Supply continued to influence prices in India while Pakistan is apparently facing shortfall of almost 33 per cent this year.
Let’s us look at how the global market faired through the week.
US MARKET:
The cotton market was on a bullish trend influenced by expectation of good demand amid weak dollar index. The March contract settled 4.7 percent higher at 73.99 cents/lb on Friday compared to same day in the previous week at 70.65 cents/lb.
The contract breached the key resistant 75 cents level on Thursday, touching a 5 month intra-day high at 75.37 cents/lb. However the contract rolled back and settled at 73.78 cents/lb.
Analysts have dismissed this rally as nothing more than a flash triggered by a technical signal and they point out that speculators might be soon out of bullets.
Meanwhile, the weak performance of the latest USDA weekly export sales failed to pressure price in the market. The USDA, in its weekly export sales report released on January 6, pegged net upland sales at 183,700 Running Bales (RB) in the week of December 23-29, down by 47 percent from previous week's 343,200 RB. (Full Report)
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CHINA MARKET:
Chinese market ended the week a firmer note as the most active May contract settled up by 2 percent at 15,295 yuan/tonne on Friday compared to same day in the previous week at 14,985 yuan/tonne.
Open interest was marginally down 0.67 percent at 285,322 lots compared to 287,248 lots last Friday whereas volume increased 18 percent at 249,582 lots compared to 210,796 lots last Friday.
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INDIAN MARKET:
The Indian cotton futures were on a bullish trend influenced by domestic market fundamentals and strong global cues.
The benchmark January contract settled higher by nearly 3 percent or Rs 620 at Rs 19,950/bale (170kg each) on Friday, January 6, compared to same day in the previous week at Rs 19,330/bale.
Open Interest witnessed a sharp decrease of 12 percent at 5,869 lots compared to previous week whereas volume sharply increased 120 percent as many participants returned to their business from the New Year vacations.
The uncertain market outlook was limiting speculators to trade only intra-day as many of them were booking profits leading to the contract touching an intra-day high of Rs 20,240 on January 5 and settling down at Rs 20,030 influenced mainly by the trend seen on the ICE futures market.
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DOMESTIC SPOT MARKET
Spot cotton market was on a bullish trend throughout the week as price increased further by nearly 3 percent mainly due to sustained demand and tracking strong global cues.
The average price of cotton (30mm) in Maharashtra increased by 3 percent from Rs 39,890/candy to Rs 41,090/candy.
Similar trend prevailed in Gujarat with the average price of (Shankar 6 A Grade) cotton pegged at Rs 40,480/candy, a more than 2 percent surge compared to Rs 39,600/candy last week.
Strong global cues influenced the spot market during the week as price was trending in line with the international cotton market.
Also, weak supply sentiment was pushing price higher as fall in raw cotton (kapas) arrival of 33 percent from 175,000 bales received on December 19 to 117,500 bales on December 31 prompted ginners to hold back stocks and limiting selling volume as per their requirements.
Demand sentiment was modest as buyers were purchasing to meet their near term requirements and in fear of further rise in price hurting their margins as the activity in the yarn market, though improving , was overall lacking enthusiasm.
The major players active in the market were MNCs who were purchasing for restocking and exporters who were hurrying to meet their commitments. Some local spinning mills bought need based volume whereas majors were on a wait and watch phase.
Cotton price surged significantly by 7 percent since December 22. The average price in Gujarat (S6 A Grade) surged from Rs 38,750/candy on December 22 to Rs 41,100/candy on January 6, 2017 while in Maharashtra (Nagpur Line 30MM) surged from Rs 38,550/candy to Rs 41,300/candy.
The surge is directly correlated to the falling daily raw cotton (kapas) arrival which declined by nearly 22 percent from 170,000 bales on December 23 to 134,000 bales on January 6, 2017.
Two factors contributed to the farmers holding back their stocks; cash crunch and influence of surging Futures on the NCDEX.
Farmers were facing difficulties to withdraw cash from banks as cooperative banks were facing shortage of cash flow. This contributed to the other factor as they were satisfied with the quantity sold during December holding back their stocks temporarily hoping to get better price in the near future marked by the surging futures’ market.
The April contract on the NCDEX Futures surged nearly 3 percent over the week and settled at Rs 988.5/per 20kg on Friday.
The total cotton arrival during the week (Jan 2-6) was at 6.34 lakh bales, down by 9 percent compared to previous week at 6.95 lakh bales.
Kapas price in the spot market was trading between Rs 4,900-5,600/quintal across various markets, higher by Rs 200-300 compare to previous week.
On the export side, the sentiment continued to remain good however international buyers are on a wait and watch mode due to rising Indian cotton price. At present, price (ex gin) was between 75-78 cents/lb which was higher than ICE futures at 74 cents/lb and Pakistan's 73 cents/lb.
The major competitor being the US market and Australian market which are estimated to have produced around 21.2 million bales and 5.9 million bales whereas Pakistan was facing shortfall of nearly 5 million bales as production was pegged at 10.54 million bales down from the target of 15 million bales.
Conclusion:
The domestic cotton market is expected to remain bullish due to weak supply and tracking global cues. Supply may gradually witness improvement however demand is likely keep price on an uptrend with minor oscillation expected next week.
(By Commoditiescontrol Bureau; +91-22-40015534)
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