COTTON NEWSLETTER 0.4
Cotton prices have rebounded by 8-10% in the last couple of weeks. J-34 cotton
(Hanumangarh station) is currently trading at Rs.9450 per mound and Shankar 6 prices are
ruling at around Rs.93000 per candy. New York Futures have jumped from the lows of 84
cents/lb to 95 cents/lb.
Federal Reserve raised interest rates by 75 bps in their last meeting. They have indicated
that they may turn dovish after a couple of more rate hikes which cheered both the
commodity and equity markets. However, if real rates continue to be negative, then it looks
unlikely that they will turn dovish so soon.
After 3 months of lacklustre demand for yarn, we have witnessed some uptick in the
domestic market. There have been hardly any exports for yarn in the last few months.
Domestic demand is expected to remain firm due to the upcoming festive season. However,
global demand, especially US and Europe shall be subdued because of the impending
recession. Uptick in yarn demand has led to an increase in prices of around Rs.8-10 per kg.
However, spinning margins continue to be negative as the increase in yarn prices have been
offset by a higher increase in cotton prices.
Spinning mills are currently holding raw cotton inventory of less than a month. It is
estimated that the total inventory in the hands of ginners, stockists and MNC’s is not more
than two lakh bales in the country. A very high premium (>20%) of Indian Cotton prices over
the international cotton has made Indian textile industry uncompetitive in the global
markets.
Update on New Crop –
Rainfall has been above average in the North as well as Western India. A healthy dose of
sunshine will be perfect for the crop as the fields have been waterlogged after heavy rains in
the last couple of weeks(especially in Gujarat). Couple of stations in UP have seen new crop
arriving in the market but the quantity of the daily arrivals are not even 5000 bales per day.
Some crop damage has been reported in Maharashtra region due to excess rainfall. India
should get a good crop this year (north of 330 lakh bales) if excess rainfall doesn’t play
spoilsport. A delayed rainfall shall definitely lead to a delay in the arrival of the new crop (by
atleast a couple of weeks)
Texas region which produces more than 35% of the US crop has been facing a severe
drought this season. Other cotton growing regions in US have witnessed a healthy rainfall .
Overall crop in US is expected to be less than 15 mln bales.
Where to from here?
Lack of supply in the physical market and revival of yarn demand in the domestic market
should keep the cotton prices firm (with a positive bias) until the arrival of new crop by mid
September.
