Continued Rally In ICE Making It Too Expensive Against Indian Cotton

Market Intelligence

Continued Rally In ICE Making It Too Expensive Against Indian Cotton

Indian cotton is trading in a narrow range despite the breakthrough in ICE cotton. The strong supply and arrivals of Indian cotton has meant that the cotton is trading lower in line with fundamentals. In contrast, ICE cotton continues to trade bullish with technical buying and continued US crop concerns. ICE March contract jumped from 83 to 87 plus level. In India, all India daily arrivals continued to slow down to a level of 120,000-130,000 level from 170,000-180,000 level, with comparatively higher seed cotton prices. Quality concerns are witnessed, with exporters and domestic mills struggling to get quality cotton. Good demand is reported for CCI cotton despite the latest price hike by Rs 500 per candy with higher international market. For the week, ICE March cotton is up 4.53 cents: for the month, up 6.63 cents, and for the year, 9.15 cents higher. March2021 cotton closed at 87.27, up 86 points, May 2021 cotton closed at 88.66, up 79 points and July 21 cotton closed at 89.41, up 75 points towards new highs. In India, this year could set a new benchmark for cotton consumption - cotton consumption is expected to touch its highest levels, as this is a good year for spinners, who are enjoying very good margins. Many spinners are planning to increase spinning capacity. Robust business and margins this year will certainly give a boost to spinning industry, in upcoming years Indian cotton consumption can be higher which will certainly lead to higher Indian cotton prices comparatively. USDA's supply/demand projections for February It was expected the size of the 2020 US crop might be revised down slightly. It was not, and remains at 14.95 million bales. As hoped and expected, US exports for the 2020 crop marketing year were raised from 15.25 to 15.5 million bales. It is possible and likely this could be raised more in future reports.US ending stocks were trimmed 300,000 bales. World production was raised a net 1.27 million bales. China's production for 2020 was raised 1.5 million bales. But offsetting this, world demand/ use was raised 1.48 million bales from the January estimate. Increases were made for India, China, Turkey, Pakistan, and Bangladesh. Imports for China, even with the higher production, were increased ½ million bales. It's worth noting that China's ending stocks are now raised 1 million bales from the January estimate. National Cotton Council Report On February 11, the National Cotton Council held its general session, which included presentation of the Council's Planting Intentions Survey and the Economic Outlook. The Council's Planting Intentions showed a decline of 5.2% for all cotton acres, resulting in expectations of 16.7 million bales of production in 2021/2022. Combined with expectations for continued strong demand and lower beginning stock for next year, the Economic Outlook featured a very tight balance sheet for 2021/2022, forecasting ending stocks at just 2.6 million bales. With homes expected for nearly all future bales, the report was soundly optimistic about cotton marketing opportunities for the coming season. CAI latest estimates In its January 2021 estimate, CAI has retained its cotton crop estimate for the 2020-21 season, beginning October 1, 2020, at 360 lakh bales of 170 kg each. India's domestic consumption is expected to reach its normal level this year after the disruptions and labour shortage on account of the lockdown due to Covid-19 pandemic. The total cotton supply during the months of October 2020 to January 2021 is estimated by the CAI at 38.63million bales of 170 kg each, i.e. 41.04million running bales of 160 kg each, which comprises the arrivals of 25.53million bales of 170 kg each during the months of October 2020 to January 2021, import of cotton estimated at 600,000bales upto January 31, 2020 and opening stock at the beginning of the cotton season on October 1, 2020 estimated by the CAI at 12.5 million bales of 170 kg each. Further, the CAI has estimated cotton consumption during the months of October 2020 to January 2021 at 11 million bales of 170 kg each, while the export shipment of cotton estimated by the CAI upto January 31, 2021 is 2.9 million bales. Stocks at the end of January 2021 are estimated by the CAI at 24.73 million bales. The CAI Crop Committee has estimated the total cotton supply till the end of the cotton season 2020-21 i.e. upto September 30, 2021 at 49.9 million bales of 170 kg each. The total cotton supply consists of the opening stock of 12.5 million bales at the beginning of the season on October 1, 2020, crop for the season estimated at 36.0 million bales, and imports estimated by the CAI at 1.4 million bales (compared to 1.55million bales in the previous cotton season 2019-20). Domestic consumption has now been estimated by the CAI at 33.0 million bales of 170 kg each, i.e. at the same level as estimated in the previous month. There is an increase of 800,000 bales in the cotton consumption compared to the previous crop year's consumption estimate of 25 million bales, as the consumption is expected to reach its normal level this year. The CAI has estimated exports for the ongoing season at 5.4 million bales of 170 kg each, as against 5.0 million bales estimated for the previous cotton season. The carry-over stock at the end of the cotton season 2020-21 is estimated by the CAI at 11.5 million bales as against 10.75 million bales at the end of the previous cotton season 2019-20. CCI sales of 12.8 million bales Market reported, CCI has sold around 12.8 million bales (170 kg each) to millers and traders in the 2020-21 season. In addition to domestic sales, the CCI has also sold 30,000 bales to Bangladesh last week. "CCI has sold almost all stocks of the previous season of around 10.8 million bales and some 2.0 million bales from the current season, which means a total of 12.8 million bales. Last year, the CCI had stocks of 11.5 million bales and only 700,000 bales remained unsold. Budget proposes 10% customs duty on import of cotton Finance Minister announced in the Union Budget a levy of 10% customs duty on cotton and an increase in the customs duty on raw silk and silk yarn from 10% to 15% to benefit farmers. Till now, the duty has not shown any major impact on cotton prices because of the small volume of cotton imports expected this year, but with increasing consumption in India this duty will certainly affect cotton prices in coming seasons in which import possibilities would be richer. The Minister further announced that in addition to the Production Linked Incentive Scheme, Mega Investment Textile Parks would be set up with plug and play facilities. As many as seven parks would be established over three years. These would enable the industry to become globally competitive. Union Textiles Minister Smriti Irani tweeted that the textile park scheme would be a game changer for the Indian textile industry. US exports sales for week ending February 4, 2021 Net sales of 275,400 RB for 2020/2021 were down 4% from the previous week and 10% from the prior 4-week average. Increases primarily for China (55,800 RB, including 4,800 RB switched from Vietnam), Turkey (44,600 RB), Vietnam (42,000 RB, including 700 RB switched from South Korea), Pakistan (25,500 RB), and South Korea (18,600 RB), were offset by reductions primarily for El Salvador (1,100 RB) and Peru (400 RB). For 2021/2022, net sales of 170,100 RB primarily for Vietnam (154,000 RB), South Korea (15,000 RB), Pakistan (9,700 RB), Bangladesh (4,600 RB), and Mexico (2,800 RB), were offset by reductions primarily for China (8,800 RB) and the Philippines (6,600 RB). Exports of 433,600 RB--a marketing-year high--were up 36% from the previous week and 46% from the prior 4-week average. Exports were primarily to China (143,200 RB), Mexico (85,000 RB, including 67,700 RB late--see below), Vietnam (68,500 RB), Pakistan (51,400 RB), and Bangladesh (20,500 RB). Net sales of Pima totalling 9,700 RB were down 49% from the previous week and 63% from the prior 4-week average. Exports for Own Account: For 2020/2021, new exports for own account totalling 18,100 RB were to China (14,700 RB) and Vietnam (3,400 RB). Exports for own account totalling 400 RB to China were applied to new or outstanding sales. The current exports for own account outstanding balance of 33,100 RB is for China (25,900 RB) and Vietnam (7,200 RB). (Vimal Verma is a cotton trader)