Fundamental Outlook
Good demand from millers and exporters and a fall in production in Indian and global markets are the reasons attributed to the continuous rise in Cotton prices over the last few months.
As per Industry estimates, Indian exports are likely to touch 8 million bales (1 bale=170kg) for the cotton year (Oct-Sep). As per their projections, ~1.5 million bales have been contracted for exports so far. Last year exports were reportedly ~3.3-3.5 million bales. Reports indicate exports from India are set to rise further as demand from China and Pakistan rise. Fall in supplies from US have enabled increasing demand from India. The exports of India's raw cotton in October have reportedly shot up 293% to 115,637 bales (of 170 kg each) over the corresponding period the previous year
The procurement of Nafed from states like Maharashtra, Gujarat, Andhra Pradesh, Karnataka and Punjab have added to the bullish sentiments. Nafed aims to procure 35-40 lakh bales of cotton this year vs 37 lakh bales procured last year. Private procurers are reportedly paying a marginal premium over the MSP of Rs 2,800/Q.
The Cotton Advisory Board recently revised downward its output estimate to 29.5 million bales vs its earlier estimates of 30.5 million bales. The reasons were attributed to crop damage in states like Karnataka, Andhra and Maharashtra.
SIMA (The Southern India Mills’ Association) estimated the production to fall to ~26 million bales against the earlier projection of 29 million bales due to adverse climate in some of the producing States.
Reports from USDA indicate global output will touch 102.7 million bales, down 1% from its previous month estimates. The demand is expected to rise to 113.5 million. There are concerns about the crops in the US and China as well.
As per the latest release of the International Cotton Advisory Committee, the world cotton production is likely to decline by 4.5% this year. It had been mainly due to fall in China’s output by 16%.The global consumption on the other hand is estimated to rise by 2.16%. ICAC reports further indicate global imports will rise by ~5% to 6.9 million tonnes in 2009-10. The imports are likely to rise from countries like China, Indonesia, Pakistan and Thailand.
There had been a demand from the domestic spinning mills industry which sought a temporary ban on cotton exports as they felt increasing exports were responsible for the rise in price and the domestic industry would be affected by the higher costs. The latest domestic price of ~Rs 25,000 per candy (1 candy = 356 kg) has been far higher than ~Rs 21,000-22,000 per candy prevailing during Oct-Nov last year
With global production falling and reports of increasing export demand from India, the trend looks positive in the short to medium term. However, any Govt steps to bring prices down may have temporary short term bearish impact on the price for the commodity whose fundamentals look firm.
Cotton is listed in NCDEX as Kapassrnr and in MCX as Kapas. April contract is the active one. Technicals indicate a bullish trend with Support at 658 and 642 and Resistance at 700 and 720 for Kapassrnr. Support levels for Kapas are 670 and 655 with Resistance at 705 and 725
Courtesy: Religare Commodities
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