Domestic Cotton Prices Exhibit Volatility

Market Intelligence

Domestic Cotton Prices Exhibit Volatility

Cotton

Cotton prices in India were seen moving in different direction during the first half of October. Coarser variety cotton was dearer while finer cotton prices declined early in the month but later recovered. Noticeably, the price movements were so volatile that Bengal Deshi (below 22mm, 5-7 micronaire) was priced higher than benchmark Shankar-6 (29mm, 3.5-4.9 micronaire). As of 12 October, Bengal Deshi was traded at INR 40,000 per candy (355.6 kg) while Shankar-6 was traded at INR 39,000 per candy. The sudden demand for coarser cotton is inexplicit and surged INR 5,600 per candy in just two weeks. Most other varieties saw spot prices fluctuating between INR 300-1,000 a candy range during the fortnight.

In view of a bumper cotton crop, there are chances of cotton prices touching the government announced minimum support price (MSP) levels. However, traders expect prices to remain above MSP levels until December. Experts have estimated 2017-18 season cotton production at about 375 lakh (37.5 million) bales of 170 kgs.

The USDA’s latest “World Agricultural Supply and Demand Estimates” monthly report of 12 October which assessed damages from the recent hurricanes in US, lowered cotton supply and demand estimates for 2017-18 resulting in reduced exports and ending stocks relative to last month’s estimates. Production in US is reduced by 643,000 bales, largely in Texas and Georgia while export forecast is reduced by 400,000 bales to 14.5 million, due to reduced production and strong competitor shipments.

The global cotton data forecasts for 2017-18 include relatively small increases from the previous month for production, consumption, and trade. Production is raised about 100,000 bales as larger expected crops in Argentina, Brazil, and Greece more than offset the reduction in the United States. Vietnam is the primary driver behind a 250,000-bale increase in projected world consumption, while a 440,000-bale increase in projected 2017-18 world cotton trade reflects increases in India, Australia, and Brazil.

Following the report, ICE cotton futures fell over 1% on 12 October to post their biggest percentage fall in three weeks as US cotton production estimates were mildly affected by recent hurricanes. The December ICE Futures settled at US cents 67.84 per pound while for the first half of October, December contract was down 0.9% or US cent 0.61 per pound.

Spot benchmark, Cotlook A index also lost 0.25 US cent during the fortnight to 78.80 US cent per pound.

In China, cotton spot markets held stable during the Chinese National Day holiday and fresh cotton was gradually coming for sale. Offers for grade 2129/2130 Southern-Xinjiang-origin hand-picked fibre in Shandong and Hebei were traded at US$ 2.56-2.62 per kg. During the first half of October, the China Cotton Index moderated RMB 25 to RMB 15,970 per metric ton.

In India, cotton yarn prices stayed relatively stable. Meanwhile, export prices have remained firm for 30s combed and FOB offer rising slightly. 30s combed cotton yarn for knitting was offered at US$ 3.00 per kg in Ludhiana while general export offers have gained 2 US cents to US$ 2.95 per kg. In China, cotton yarn prices were steady but transactions were muted due to limited demand for conventional varieties like 21s and 32s after the holidays. 21s combed was traded at US$ 3.45 per kg and 32s at US$ 3.77 per kg in Shengze, rollover from previous fortnight.

Cotlook ‘A’ Index: 78.7 (As on 12th October 2017)