High Cotton Prices Limit Trading Activity

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Indian physical cotton market remained steady to firm with limited trading activities reported. Recently Indian monsoon covered well all across cotton growing regions in India, this rainfall was most required for standing crop which gave a boost to the crop, as of now crop condition is reported very good, except few small regions affected with diseases in Maharashtra, but these areas can be negligible. Overall physical market sentiment is weak but MCX future for current month tried to give good support to physical market price, but physical market did not follow MCX with 1:1, so MCX & physical price spread widened. In market, traders raised a question on MCX spot prices as well, asking to justify  the spot pries taken by MCX trade. These prices are much higher than the spot price given by local regional bodies, which was main cause to take MCX upside without aggressive demand in physical market. There are market talks of there being open speculation on MCX. Small investors and hedgers are losing trust on exchange in this way. Soon cotton arrivals are expected from northern India, so mills having enough stock for coming days are not in hurry to buy immediate cotton from the current crop. As per current scenario, this year people are expecting bumper Indian crop with better yield.

Weak Indian currency (currently trading at INR 72/USD) played a very vital role to support the flat price in India otherwise Indian prices could be lower from here. ICE is trading in narrow range from last two weeks, which has potential to go further lower after announcement of duties on each other in US-China trade war. ICE cotton futures dropped over 1% on August 26, as heightened US-China trade tensions weighed on investor sentiment. Cotton contracts for December fell 0.60 cent, or 1.03 %, at 57.61 cents per lb, trading within a range of 56.59 and 57.97 cents a lb. The G7 Summit was expected to bring in some direction to the US-China trade war, which could have helped the market take some direction. Global markets are cautiously bullish, after news that the US and China will return to the negotiating table. Meanwhile, ICE could not influence MCX with its weaker tendency, so MCX current month – ICE Dec. 19 spread is trading on higher side and able to sustain it from longer.

This year cotton imports were much cheaper in India, especially US, Brazilian, WAF were booked in good quantity. These cottons have already started to land in India and are supporting in supply side. September month would be interesting and if the demand side would be same as today and weather would also be favourable, prices can come down sharply for immediate deliveries, as this August is the last month on MCX for 2018-19 crop, so people creating virtual bullishness in market would be out to influence market and market can behave in its own way.

(Vimal Verma is a Cotton Trader)

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