Overbought ICE Eases From A High Of USC 83


Technically, ICE cotton market was reported trading in highly overbought zone keeping aside world’s fundamental and bear factors. This week, we are noticing a correction. Selling was reported on ICE and now after continuous downfall in the last two sessions, ICE March 2021 is trading below 80.50 level from 83 level. If selling on ICE continues, then Indian market could also feel the price pressure despite MSP operations. Till now, Indian cotton has been trading range bound with good daily arrival numbers, despite steady demand and higher ICE.

Indian cotton daily arrivals are steady at around 175000-190000 bales a day. All India total arrival has reached approximately 65% of total estimation. Cumulative arrivals were faster than expected due to initially good buying by CCI at MSP. Farmers sold good volumes at MSP. Later, CCI put a cap on daily buying, and slowed down its procurement. At the same time, cotton started trading higher than MSP in the open market.

Cotton quality issues
Quality issues are continuing in market especially with staple length, and RD values are a bigger challenge. With higher seed cotton prices and comparatively lower cotton lint prices ginners are making average to low quality. Its still challenging to get good quality cotton even at higher prices. Going ahead, price gap between good quality cotton and average quality cotton will widen.

Cotton statistics
The latest World Agriculture Supply and Demand Estimates report by the US Department of Agriculture (USDA) declared lower global cotton output and improved consumption for the 2020-21 crop year. Cotton output is seen dropping in the US as well as in India, while cotton exports are seen rising in the latter. ICE cotton prices have moved from 50s to 82 cents level in mid-January.

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Last week’s export sales report showed cumulative sales for 2020/21 have reached 12.157 million bales. This amount was up from last year’s 11.859 million, the highest level since the 2010/11 season. Sales have reached 86% of the USDA’s forecast for the marketing year versus a five-year average of 73%.

Spinners are buying cotton
Cotton yarn prices stay firm tracking the bullish trend in global cotton prices. Yarn prices are continuing to trade in profitable way for spinners despite the recent fall in prices. Spinners are making good money, and are thus liberal in cotton sourcing from ginners. Ginners are finding it easier to sell cotton to domestic spinners over exporters because spinners are not as particular about quality and quality claims, in the background of handsome margins in yarns. But when there is a fall in domestic yarn prices, ginners could redirect their selling from mills to exporters.

Cotton consumption in India has gone up significantly in comparison to last year and it’s considerably better in average of last 10 years too. Estimations are differing from different sources, but yarn movement and demand of cotton bales from local mills itself proves that mills are running at full capacity. As per market estimates, mills are carrying average stock of approximately three months. This has been the trend for the last couple of months. Daily cotton consumption is being replenished with daily purchases of cotton.

However, with decline in yarn price, inventories could come down too.

Economic activity has picked up. Direct and indirect effect of this is seen in the garment industry as well. Since the last few months, apparel demand in the domestic and export markets has picked up.

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China detects coronavirus on imported cotton bale cover
According to market reports, China’s Fujian province detected coronavirus on the packaging of a shipment of imported cotton whose origins are yet not clear. This is really a serious discussion in the export markets. If found true, then this will mean strict disinfection of cotton shipments, quarantines, increasing the cost of imported cotton. It could also slow down China’s cotton imports.

Worldwide, the pandemic continues, with the situation broadly unchanged from last fortnight. In India, vaccination is proceeding at a good pace.

CCI MSP procurement
CCI slowed down cotton procurement, as cotton started trading above MSP in the open market. Local ginning factories are reportedly able to consume most of the daily cotton arrivals. In some market however, there were reports of cotton trading below MSP.

As per CCI, procurement operations of seed cotton (kapas) under MSP are going on smoothly in the states of Punjab, Haryana, Rajasthan, Madhya Pradesh, Maharashtra, Gujarat, Telangana, Andhra Pradesh, Odisha and Karnataka. Till January 26, 2021, a quantity of 88,43,847 cotton bales valued at Rs 25,826.59 crore has been procured benefitting 18,13,359 farmers.

US exports sales for week ending January 21, 2021
Net sales of 322,700 RB for 2020/2021 were up 10% from the previous week and 22% from the prior 4-week average. Increases were primarily for Turkey (65,900 RB), Vietnam (62,400 RB), Pakistan (57,800 RB), China (36,400 RB), and South Korea (24,000 RB). For 2021/2022, net sales of 53,600 RB primarily for South Korea (15,800 RB), Thailand (10,600 RB), Pakistan (8,400 RB), Japan (8,000 RB), and Vietnam (6,700 RB), were offset by reductions for Guatemala (7,100 RB).

Exports of 275,300 RB were down 15% from the previous week and 4% from the prior 4-week average. Exports were primarily to China (112,400 RB), Vietnam (47,900 RB), Pakistan (36,400 RB), Mexico (22,300 RB), and Bangladesh (11,700 RB.

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Net sales of Pima totaling 25,800 RB were up 8% from the previous week and 27% from the prior 4-week average. Increases were primarily for India (9,900 RB), Pakistan (6,100 RB), Peru (3,400 RB), Vietnam (1,200 RB), and Egypt (1,100 RB).  Exports of 12,600 RB were up 51% from the previous week and 8% from the prior 4-week average.  The destinations were primarily to India (4,800 RB), Vietnam (2,600 RB), China (2,200 RB), Peru (1,200 RB), and Egypt (900 RB).

Exports for Own Account:  For 2020/2021, new exports for own account totaling 5,300 RB were primarily to China (2,900 RB) and Vietnam (1,700 RB). Exports for own account totaling 1,800 RB to China were applied to new or outstanding sales.  The current exports for own account outstanding balance of 8,600 RB is for China (5,900 RB), Vietnam (1,700 RB), and Indonesia (1,000 RB).

(Vimal Verma is a cotton trader)


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