MUMBAI (Commoditiescontrol) – Domestic cotton market and Indian futures ended the week on a bearish tone on drastic improvement in supply coupled with modest demand. ICE futures ended the week on a slight bearish tone on harvest pressure and stronger dollar. ZCE futures was marginally down on lackluster demand from mills.
Let’s first look at how the global market faired throughout the week.
US MARKET:
The cotton market declined by nearly 2.12 percent over the week as it lost 150 points on harvest pressure coupled stronger dollar.
The benchmark December contract settled at 69.07 cents/lb compared to prior week at 70.57 cents/lb. It traded in a tight range throughout the week between 68.61 and 71.79 cents/lb.
On the other hand, despite strong weekly export sales prices did not increase as anticipated in fact the harvest pressure weighed more on the price as it settled lower by 1.82 percent at 69.8 cents/lb on Thursday.
The USDA weekly export sales released on Thursday, October 14 showed sales of 340,200 Running Bales (RB) surged by nearly 50 percent from previous week at 226,900 RB. (Full Report)
A lot of these export sales continue to be made ‘on-call’, as the latest report by the CFTC shows. As of October 14 there were 8.41 million bales still to be fixed, of which 2.15 million bales were in December. That translates into a lot of support underneath the market and time is starting to run out for Dec fixations.
The market is still locked into a trading range of 66-71 cents with harvest pressure and fluctuating demands from mills.
CHINA MARKET:
Chinese market was inclined to a bearish tone as the most active January contract marginally lower by 0.69 percent at 14,955 yuan/tonne compared to previous week on Friday at 15,060 yuan/tonne.
The November contract touched nearly 4 week low on Friday as the contract settled at 14,955 yuan/tonne. It traded within the range 14,795-15,180 yuan/tonne during the day.
Open Interest also witnessed a decline over the week by nearly 7 percent at 359,158 lots from 385,692 lots on October 14.
Dull demand from the mills was the major factor which weighed on the prices in the market as they have enough stocks in their warehouse due to the major buying which took place during the State Reserve Auction.
Ginners were quoting prices however no buyers were interested in striking any new deals.
Experts suggest that market may trade on a cautious note next week.
INDIAN MARKET:
The Indian cotton futures were more or less inclined to a bearish side as market participants indulged in securing short position on improving supply in the domestic market.
The benchmark November contract dipped by 1.68 percent at Rs. 18,660/bale(170kg each) compared to previous week Rs 18,980/bale.
The market witnessed slight short covering during the week as the contract touched a 3 week intra-day high on Thursday at Rs 19,150/bale. Last time it touched a session high was on September 28.
The speculators took advantage of declining prices in the market and covered their short positions as the contract settled marginally higher by 0.64 percent at Rs. 18,860/bale on Thursday. However, the contract rebounded and settled lower on Friday.
The open interest also declined sharply by 11.14 percent at 3,635 lots on Friday compared to same day previous week at 4,091 lots.
The market will be inclined to downward trend as speculators indulge in more short position with decline witnessed in both price and open interest of the contract.
DOMESTICSPOT MARKET
Spot cotton in the domestic market was more or less on bearish side as improving supply pressured prices especially in the North side during the week coupled with limited demand.
Cotton market slipped by nearly 3 percent at major markets of Central India whereas was marginally higher at North India on limited demand coupled with sluggishness in supply due to strike in the state of Haryana.
The average price of cotton (Shankar 6 30mm) in Gujarat fell by nearly 3.38 percent at Rs 39,950/candy compared to previous week at Rs 41,350/candy.
The major factor that weighed on prices was improving supply coupled with subdued demand from buyers as they opted to wait and watch in anticipation for further decline in prices.
Supply has significantly improved by 76.14 percent at 4.80 lakh bales compared to previous week at 2.72 lakh bales. The quality arriving in the market was also improving day on day with moisture levels declining to range between 9-10 percent.
However, supply in North India declined by nearly 11 percent at 1.29 lakh bales compared to previous week at 1.44 lakh bales as supply halted in Haryana on retaliation by the Haryana Ginners Association due to failure to reduce market fees and refund of VAT of cotton purchases by the government (Full Report)
Whereas, Central and South India witnessed a significant improvement receiving two times more than the arrivals of last week. Central India received around 2.84 lakh bales versus 1.14 lakh bales in the previous week. South India received around 70,000 bales versus 14,500 bales last week.
The country has so far received 11.16 lakh bales upto October 22.
On the other hand, demand was more or less limited as certain mills and spinners were purchasing in North India to replenish their inventories whereas was subdued elsewhere. Many mills and spinners have opted to wait and watch for further improvement in supply to strike big lot deals with the discouraging factor being dull demand in the yarn market. More than 42 percent mills in the south side have opted to shut down operation until Diwali.
Demand could likely pick up momentum on slow and steady basis after market participants return from vacations after Diwali as the supply will further increase pressuring prices further down.
Conclusion:
Domestic cotton price may more or less inclined to a bearish term as supply pressure will weigh on prices further until Diwali as demand will likely gain momentum early November.
(By Commoditiescontrol Bureau; +91-22-40015534)
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