International markets continued in downtrend with more positive cases of COVID-19 across the world. USA has overtaken Italy in positive number of cases, but still Italy has the highest number of deaths in world due to COVID-19. In view of intensity of COVID-19 across the world, countries are doing their best to stop the spread of the deadly virus.
Lockdowns take a toll on global economy
India has announced a complete lockdown of 21 days. No movement and no production is allowed except of essential goods and services. USA and Europe too are enforcing lockdowns and social distancing to control the disease.
Global lockdown comes at a very high economic cost which the world will have to bear to fight the pandemic. This is the only way available now. This lockdown and social distancing is hitting every country’s economy directly proportional to the intensity of Covid-19 in that country.
Cotton prices are sliding
ICE cotton contract for its May delivery 2020 touched a low of 49.72 on March 30, an indication that markets can continue in downtrend if things do not improve soon. Basically, ICE cotton suffered another week of casualties at the hands of the COVID-19 pandemic, weakening US currency, even as another round of extremely strong US export data did little to bolster the market.
Textile production and trade is widely spread in Asia-Europe and USA in different ways and COVID-19 is hitting all these parts of the world majorly. Due to lockdown and social distancing, major industries including textiles are either shut down as is the case in India, or is working at very low capacities and demand. Uncertainty is leading to continued downtrend.
Any positive sign to get rid from Covid-19 can give a spark of hope to the industry.
US cotton crop estimates lowered
Secondary sources have projected US cotton plantings at 12.4 million acres; the average of the USDA and National Cotton Council (NCC) early season forecasts is 12.75 million acres. While we had earlier expected acreage to be in excess of 13 million acres, we are now projecting US planted area at 11.3 million acres.
USDA export data continues to impress. US net export sales 2019/20 were off significantly (but still strong) for the week ending May 19 Vs the previous assay period. Sales and shipments were well ahead of the average weekly pace required to meet the USDA’s 16.5 million bales export target. All eyes will, of course, be on the next annual USDA Planting Intentions report.
Crude has recovered from recent lows and interest rates are in the negative in some of the developed nations. In China, the main concern now is the lower ability to produce, and mostly the lack of demand. Export orders for textiles and garments have practically stopped, and domestic retail is recovering only slowly.
Indian government, central bank announce a slew of measures
Last week, the Indian government has taken lot of measures to fight efficiently with coronavirus, with minimum damage to the economy. Reserve Bank of India (RBI) governor Shaktikanta Das announced a 75 basis points cut in repo rate to deal with the impact of deadly coronavirus outbreak on the economy. The announcement came a day after Union finance minister Nirmala Sitharaman unveiled a slew of measures worth Rs 1700 billion ( approximately US$ 23 billion) in an effort to cushion the economic blow of the 21-day lockdown in wake of the pandemic.
CCI stops MSP operations, Indian cotton prices falling
Finally Cotton Corporation of India stopped its buying operation at MSP till the lockdown is on with cotton stocks of around 10 million bales.
In India cotton prices continued to fall with very limited trading activities with absence of buyers and sellers. Indian physical cotton prices are reported around Rs 36500-37000 per candy for S-6/ 29mm/3.8mic cotton. Indian cotton futures (MCX) are trading discounted with spot physical prices but with comparative lower volume.
MCX April cotton contract is trading at Rs 34000 per candy (for MCX quality parameters), around Rs 2300 per candy discount from ready physical market. It’s still difficult to find the bottom of prices in the current scenario.
Indian textile industry is also in lockdown mode following all governmental regulations. Lets keep cotton indoors and stay at home. Keeping cotton indoor will certainly not be a good decision but its the need of the hour. Stay home, stay safe, lets follow the lockdown and defeat the coronavirus soon.
(Vimal Verma is a Cotton Trader)