Dec 05, 2019
An outcome on the trade-deal front is the only factor that could push the ICE cotton-futures near-month contract above 65 cents. On the MCX, prices of raw cotton dipped below Rs 19,000 a bale (170kg) in late November as arrivals, though delayed, gathered momentum across India. The December cotton contract on the MCX settled 1 percent lower in November.
Greater cotton output and crop arrivals have piled pressure on prices. The Cotton Advisory Board has estimated India's 2019-20 cotton crop up by 9.1 percent at 360 lakh bales. In the physical markets of Maharashtra, prices of ginned cotton have recovered in the last one week but are still below the MSP (Rs 5,550 a quintal).
Procurement of cotton by the Cotton Corporation of India is on in full swing; thus, the downside is limited. On fundamentals, cotton supplies for this season (2019-20) are no doubt higher than in 2018. But, the board estimated lower imports at 25 lakh bales (versus 31 lakh in 2018) while exports are seen to be higher at 50 lakh bales (against 44 lakh in 2018).
Also, the board pegged India's consumption at 381 lakh bales, compared with 359.5 lakh in 2018. Still, the 2019-20 closing stock has been estimated at 48 lakh bales, higher than the 44 lakh of 2018-19, mainly on account of greater output. In global markets, ICE cotton futures were unable to hold above 65 cents (the near-month contract) as no concrete conclusions resulted in the trade-deal front.
On December 3, ICE cotton futures fell more than 1 percent to a more-than-one-week low as comments from US President Donald Trump diluted optimism about a potential breakthrough in the US-China trade dispute. An outcome on the trade-deal front is the only factor that could push the ICE cotton-futures near-month contract above 65 cents. Otherwise, fundamentally, demand and supply factors do not support any major upswing.
The global demand is on the weaker side. The International Cotton Advisory Committee says the textile industry in southeast and east Asia, the 'engine' of expanding consumption in recent years, is stalling amid weakening consumer demand for goods. Supply-side fundamentals, though, are strong.
The crop-progress report from the US Department of Agriculture on December 2 showed that the US cotton crop had been 83 percent harvested in the week to December 1, above the five-year average of 81 percent. Considering developments in domestic and global markets, we expect cotton to trade tight in the short term. (Source: Moneycontrol.com)