MUMBAI (Commoditiescontrol) – Choppy performance was seen in major cotton markets of China, US and India as demand moderated amid improved supply. This is how the global market faired during the week.
US MARKET
The cotton market was choppy during the week as the benchmark March contract contract settled a tad lower at 71.04 cents/lb on Friday compared to same day in the previous week’s 71.25 cents/lb.
The market opening the week with a rise and falling on subsequent day. However it ended the week lower.
According to the latest CFTC Commitment of Traders report, speculators bought a massive amount of futures and/or options during the week of November 16-22, adding 2.56 million bales to bring their total net long to 11.02 million bales, an all-time high. Trade was opposing this onslaught of spec buying with full force, since it added 2.49 million bales to its net short position, which amounted to a rather substantial 17.75 million bales on November 22. Growers selling above 72 cents were apparently strong enough to stop speculators in their way.
With two of the most influential market participants in the game going in opposite direction, fluctuations were expected in the market. However, experts believe that trade short will win the war and pressure prices down and sooner or later specs will follow suite looking for an exit route but it won’t happen anytime soon.
A dip to 68-69 cents/lb may be witnessed by aggressive short covering, which will support prices to a certain extent.
The USDA Weekly export sales released on December 1 showed sales of 202,300 Running Bales (RB) down by 21 percent from previous week at 254,800 RB. (Full Report)
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CHINA MARKET
China market saw mixed tone as the most active May contract settled down by 0.47 percent at 15,810 yuan/tonne compared to previous week on Friday at 15,885 yuan/tonne.
Volume was sharply up from 301,902 lots to 421,006 lots as participants were moving from the January 2017 contract and were securing position in the May 2017 contract. Open interest was up by 6.21 percent at 304464 lots compared to previous week at 286,648 lots indicating that the market is strengthening.
The country was early to complete harvest with almost 97 cotton crop donw as on December 2.
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INDIAN MARKET
The Indian cotton futures extended a bearish sentiment as speculators indulged in more short position anticipating supply pressure to bring prices down in the market.
The benchmark December contract was a tad higher 0.05 percent settling at Rs.19,030/bale(170kg each) on December 2, compared to previous week’s Rs 19,020/bale.
Speculators were exiting their long position as open interest was down by nearly 10 percent at 4193 lots compared to previous week at 4681 lots. Even volume was down from 1594 lots to 823 lots.
Minor short covering was witnessed during the week as short positioned speculators were booking profits ceasing the opportunity of declining price.
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SPOT MARKET
Spot cotton in the domestic market saw mixed trend throughout the week on account moderate demand amid slow improving supply.
Cotton market was a tad higher by 2 percent or Rs 500-1000/candy across major markets of India compared to last week.
The average price of cotton (30mm) in Maharashtra was up 2 percent from Rs 39,290/candy to Rs 40,240/candy. The same was marginally down in Gujarat averaging Rs 39,240/candy compared to Rs 39,460/candy last week.
Demand was limited as only few spinners were active in the market to replenish inventories. Mills were operating on a limited capacity as they were lacking workforce and discouraged sentiment in yarn market since November 8 which kept them on the sidelines anticipation of further decline in price.
Fluctuation in price was witnessed during the week as cotton price in North rallied by Rs 30-40/maund for two consecutive days after witnessing a correction on Wednesday. Ginners were creating artificial shortage in supply which was the reason behind the oscillation trend throughout the week.
Supply improve marginally on a daily basis farmers delivering stock by accepting payment in cheque or RTGS basis.
Supply had touched a seasonal low on November 14 at 55,500 bales. Arrival jumped 136 percent as market received 131,000 bales as on December 2.
Arrival during the week (Nov 28-Dec 2) increased marginally by 2.08 percent at 5.87 lakh bales compared to previous week’s 5.75 lakh bales.
The solution for liquidity crunch was gradually hitting the market as cheque payment was the acceptable mode of payment in the value chain and the effect was reflected as improving supply pressured price down in the market. However, reluctance to non-cash deals still prevailed in many farmers in the lower level and yarn market too. For the market to fully switch to a different mode of payment would take some time.
Competitive domestic price coupled with depreciating Rupee were positive factors for export. Cotton price in US cents/lb was trending between 72-74 cents/lb compared to price of ICE Cotton settling at 71.04 cents/lb on December 1. In Pakistan, cotton was at 73.24 cents/lb and Cotlook Index A, much higher at 79.30 cents/lb.
Reports of Pakistan banning Indian cotton would not impact the India’s performance in the global market. (Full Report)
Conclusion:
Cotton market may witness minor fluctuation in coming week as improved supply will encourage spinning mills to purchase cotton to replenish. However, the steady sentiment in the yarn market will probably limit spinners to indulge in big lot deals. Traders anticipate no major movement in prices as the demonetization effect is yet to fade completely.
(By Commoditiescontrol Bureau; +91-22-40015534)
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