By Kavita Desai - Cogencis, | Tuesday, May 14

MUMBAI - Cotton prices on Multi Commodity Exchange of India slipped below 20,000-rupee-per-bale (1 bale = 170 kg) mark for the first time since March 2018, tracking weakness on benchmark ICE Futures US, analysts said.

On Monday, cotton futures on ICE declined sharply to 64.65 cents per pound, hitting a near three-year low, as China's announcement of retaliatory tariffs on the US rattled the commodity markets. China said it would impose tariffs on $60 bln worth of US imports from Jun 1.

Since the beginning of May, the July cotton contract on the ICE has declined almost 15%. Given the extent of volatility, ICE has raised the daily price limit to 4 cents from 3 cents even though the contract is trading below the threshold limit of 80 cents.

According to exchange norms, the initial price limit for cotton contracts is 4 cents per pound only if the settlement price of a reference month is between 80.01-110.00 cents a pound. This hike in daily price limit might have been made to allow the market to absorb the bearish sentiment on a real time basis.

Tracking the movement on ICE, the May cotton contract on MCX had hit a 14-month low of 19,950 rupees at open today. However, the contract erased some losses, due to a shortage of the commodity in the spot markets, to trade at 20,250 rupees, down 2.5%. Following a sharp increase in margins to 9% from 6.25% on Monday, some brokers closed down leveraged positions, which market participants say, was the reason for the 4% fall on MCX at open.

However, domestic prices of cotton are showing resilience to the trend on ICE as prices on MCX fell only 11%, compared with a 15% decline on ICE. The fall in Indian spot prices is still limited to higher single digit levels in various markets.  

The Cotton Association of India has scaled down its estimate for production in the current 2018-19 (Oct-Sep) season to 31.5 mln bales from 32.1 mln bales. The association has declined its production estimates for the seventh consecutive month.  == End === (Source: