MUMBAI(Commoditiescontrol)– Cotton market a exhibited a mixed tone in the week ended April 14 with US market rebounding on support of mill fixation and strong weekly export sales. Meanwhile, Indian market observed long liquidation on the futures market which capped gains in the spot market.
Let’s first look at how the global market faired throughout the week in detail.
US MARKET:
The US cotton futures rebounded, from 11 week low levels, gaining 227 points to settle at 75.62 cents/lb on Thursday in the holiday shortened week ended on April 13.
The May contract gained nearly 1.5 percent over the week on back of short covering amid weakening open interest which fell 57 percent to 44,583 lots from 60,258 lots in the week prior.
The 11-week low level when price touched 73.35, lowest since January 21 gave a superb opportunity to trade shorts to cover their positions. The latest CFTC report showed that speculators had reduced their net long position by 1.76 million bales to 9.63 million bales between March 29 and April 4, while the trade had cut its net short by 2.06 million bales to 16.18 million bales.
From the reduction in trade shorts were the mills who fixed their outstanding on call position in May contract which reduced by 11,545 lots to 7,501 lots (0.79 million bales of 480 lb each). However, on call positions in July increased 505 lots to 44,564 lots (4.64 million bales) while December increased 1,591 lots to 25,067 lots (2.61 million bales).
Another round of strong weekly export sales also provided support to the market. The USDA, in its weekly export sales report released on April 13 pegged export sales at 316,900 Running Bales (RB) in the week Mar 31-Apr 6, 2017. It increased 11 percent from previous week's 284,600 RB. (Full Report)
Total commitments for the season have now reached 13.9 million statistical bales, of which 9.2 million bales have already been exported. If US continues to export at the current pace then it will soon run out of cotton to sell.
As per the balance sheet drawn from the USDA World Agricultural Supply Demand Estimates (WASDE) report, beginning stocks of 3.8 million bales and a crop of 17.2 million bales give us a total supply of 21.0 million bales this season. From that domestic mills use 3.3 million bales and exports are so far at 13.9 million bales. This leaves 3.8 million bales however we need to deduct 0.9 million bales for domestic mill use from August to October and an estimated 1.6 million statistical bales (out of so far 2.1 million in ‘new crop’ commitments) for the same time frame. This leaves around 1.3 million statistical bales still available, which corresponds to about 6% of total supply.
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CHINA MARKET:
Chinese market ended the week bullish tone as the September contract on ZCE futures settled up 2.24 percent to 15,780 yuan/ton on Friday over the week.
Market participants were rolling over their positions from May to September as the open interest increased 16 percent to 228,134 lots.
Meanwhile, as of April 14, around 655,180 tons (38.53 lakh bales of 170kg each) were sold in the on-going State Reserve Auction from the total offered quantity at 884,473 tons (52.02 lakh bales).
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INDIAN MARKET:
The Indian cotton futures exhibited a bearish tone for the second consecutive week on major long liquidation.
The MCX April cotton futures began the week bullish with prices touching Rs 21,000/bale on Tuesday however weak global market trend and appreciation in Rupee against dollar capped gains as it settled down to Rs 20,730/candy falling below the 21 and 50 day SMA trend line.
Open interest declined sharply by 21 percent over the week to 1.455 lakh bales indicating long liquidation from higher levels. Meanwhile, volume declined 44.6 percent to 2.06 lakh bales.
However, open interest was increasing in the May contract 23.5 percent to 1.39 lakh bales amid marginal decline of 0.8 percent in price with the spread of 220 points between April and May.
Rupee against dollar settled at 64.41 on Thursday on fresh selling of US dollar by speculators amid weakness in the dollar index. Appreciation in Rupee since past few weeks was supporting import sentiment.
Traders long and holding the same can maintain the stop loss at 20290 with retracement levels placed at Rs 19,935-19,538.
DOMESTIC SPOT MARKET:
Spot cotton market witnessed a bearish trend throughout the week falling nearly 2 percent over the week averaging between Rs 37,850-45,210/candy on another round of sluggish activity.
The market witnessed a minor intraday rally on Tuesday to increase nearly by Rs 200-500/candy however, as the week progressed, lackluster demand from major buyer put a lid on Tuesday’s rally.
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Major price fall was observed in the North Indian market which lost 2 percent to average between Rs 44,150-45,210/candy (4,650-4,750/maund) heavily influenced by speculative trading in futures market.
Meanwhile, The Gujarat Shankar 6 A Grade cotton was marginally lower 0.6 percent to Rs 44,170/candy compared to Rs 44,425/candy in the last week.
The Maharashtra 30mm prices declined 0.9 percent to average Rs 44,350/candy from Rs 44,700/candy in the previous week.
As per the data collated from market sources, arrivals for the week (April 10-13) marginally decreased 3 percent to 2.92 lakh bales from 3 lakh bales in the prior week (April 3-7) with the average daily arrivals at 0.75 lakh bales levels for the second consecutive week.
The trade activity was limited as market participants in the physical market were heavily influenced by the futures market trend. Sellers were persistently quoting a higher price for good quality lint on the back of limited stock available in their inventories. However, the spot market failed to provide support for the higher asking price as weakness in the futures market on long liquidation weighed on spot price amid lackluster demand.
Large scaled spinning mills who were financially supported have covered their inventories for the next two-three months awaiting for the contracted cotton imports to arrive in the market beginning from Mid-May onwards.
As per market sources, a report from South Indian Mills Association (SIMA) stated that around 30 lakh bales have been contracted expected to arrive between June to September amid supportive Rupee against Dollar hovering around the 64 levels.
At present, the spot market was in backwardation by 2.40 percent compared to future prices of April contract and 1.40 percent compared to May indicating that spot prices may weaken in the short to medium term.
(By Commoditiescontrol Bureau; +91-22-40015534)
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