Cotton Weekly: Domestic Market Witnessed Volatility!

MUMBAI (Commoditiescontrol)– Key cotton markets were volatile throughout this week

US market ended the week marginally weak
Chinese market was mildly bearish
Indian market was volatile throughout the week

Let’s first look at how the global market faired throughout the week.

US MARKET:

The US cotton Futures ended the week marginally weak as March contract on the ICE futures was tad lower 0.8 percent over the week to settle at 75.82 cents/lb on Friday.

The contract was trending on a tight range of 75-76.5 cents/lb as speculators were rolling forward their position throughout the week.

As per the latest CFTC report, the unfixed on call for March dropped marginally to 2.86 million bales from last week’s 3.24 million bales. Mills were procrastinating to buy their unfixed call as weak trend in the beginning of the week gave them false hope that prices will further fall.

Overall the amount of unfixed on-call sales continued to increase last week, as May and July picked up over 200,000 bales each. At the beginning of this week there were 12.09 million bales yet to be fixed, of which 9.49 million were in current crop March, May and July. The total ties the record of early November 2010, when also 12.1 million bales on-call sales were still unfixed.

On the other hand, strong export sales supported the market on Thursday. As per USDA, net upland export sales touched marketing year high where 24 destinations received shipments of 464,000 bales.

The USDA weekly upland sales were pegged at 208,100 Running Bales (RB) in the week January 27-Feb 2, 2017. It decreased 36 percent from previous week's 328,700 RB and 39 percent from the prior 4 week average. (Full Report)

Meanwhile, USDA WASDE report failed to provide the market with new stimulus as the most of the figures remained unchanged with only World consumption to increase 1.1 percent year on year to 1439 lakh (170 kg each) or 112.52 million US bales. (Full Report)

CHINA MARKET:

Chinese market was mildly bearish as the May contract on ZCE futures settled 0.22 percent lower over the week at 15,885 yuan/tonne on Friday.

Open interest increased 9.4 per cent to 334,186 lots and volume increased 11.3 percent to 220,840 lots.



INDIAN MARKET:

The Indian cotton futures ended the week tad lower 0.1 percent as benchmark February contract settled at Rs 20,770/bale on Friday.

Over the week, open interest decreased 4.3 percent to 7,336 lots whereas volume for the week marginally decreased 44 percent at 2.31 lakh bales compared to previous week’s 4.15 lakh bales.

Speculators are rolling forward their position to the March contract as the open interest was at 6,242 lots witnessing a jump of 34 percent from previous week. Whereas volume was at 1.54 lakh bales compared to 1.51 lakh bales.



DOMESTIC SPOT MARKET:

Spot cotton market was volatile this past week giving out a mixed trend to average between Rs 42,300-43,750/candy.

The Maharashtra 30mm prices was a bit lower 0.07 percent to Rs 42,790/candy from Rs 42,820/candy in the previous week.

Similar trend prevailed in Gujarat with Shankar 6 A Grade cotton pegged at Rs 42,760/candy, tad lower 0.3 percent compared to Rs 42,880/candy last week.

Improving supply since January 23 when raw cotton arrivals reached the season’s normal level of 1.70 was weighing on the prices however, cues from the global market and reluctant ginners to sell at a lower price was supporting the market.

Cotton was bearish at the beginning of the week witnessing a fall of Rs 500-800/candy over the course of three days on consistently good supply and lack of any supportive factor. Raw cotton daily arrivals touched season high receiving 1.925 lakh bales on February 6.

Raw cotton (kapas) arrivals, collected by Commoditiescontrol, for the week (Feb 6-10) was at 9.41 lakh bales, which was 6 percent higher compared to previous week (Jan 30-Feb 3) at 8.86 lakh bales.

The Cotton Corporation of India (CCI) reports that 171 lakh bales have arrived in the market as on February 8. (Full Report)

However, observing the dip, leading buyers returned to the trading ring which pushed prices higher in the market. Good demand led cotton price in North India to touch a season high ranging between Rs 4,530-4,650/candy.

Higher cotton price has not been supportive to the export sector as demand from international markets was negligible. The current price quoted for cotton export was around 84-87 cents/lb whereas, the major competitor at present being the US was offering a much lower price for their stock. Buyers were inclined to purchase US cotton which was resulted in strong weekly export sales performance as per USDA.

Further, appreciating Indian rupee against US dollar, which logged a fresh three-month high against the dollar at 66.84 to a dollar in Mumbai, its highest since November 10 was not supporting the export sentiment.

India will witness tough competition in the export market as Brazil and Australia will soon enter the market as they begin harvesting cotton from March onwards. Australia is expected to have bumper production this season and being more export inclined, the country is likely to see a major boost in export this season.

Conclusion:

Fundamentally, the story remains the same whereby demand revives when price drops whereas sellers reluctant to sell at a lower price supports price in the market. Large MNCs and spinners have more or less stocked up their inventories which will meet their requirements until end February.

Consistently good supply of raw cotton in the market was a positive factor and once the arrivals breaks forth the 2 lakh bales mark, cotton could trend on the bearish side. Around 50 percent of the total crop estimate has arrived in the market and with the remaining 50 percent yet to arrive, on the long term cotton will witness major corrections however we do not see that happening any time soon.

Demand from export will remain negligible until prices fall to a competitive world market level so the only demand will be witnessed is from domestic mills. However, we need to watch out for MNCs who at the beginning of the season have stocked up their inventories and will likely sell directly to mills at a lower price than quoted in the market. This could negatively affect cotton prices in the market.

(By Commoditiescontrol Bureau; +91-22-40015534)