CottonGuru’s Fortnightly Cotton Market Newsletter 09th June 2015

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COTTONGURU™ - P.R.D. Cottons Group Of Companies

INDIA Arrivals: (as on date: 02-06-2015)

Weather and Sowing: The southwest monsoon season rains (June to September), which account for over 70 % of India’s annual rainfall, are projected to be below normal for a second straight year. The Indian Meteorological Department (IMD) believes the current weak El Nino conditions are likely to continue during the monsoon season, thereby leading to a below-average rainfall in the country. However, less rainfall is not really bad news for cotton. A below-average monsoon may not hurt its production, as cotton is more resilient than most rain-dependent agriculture crops. In fact, experts point out that a poor monsoon normally tends to benefit cotton, as it is a desert crop like it happened in 2014-15.

Cotton sowing might dip by up to 15 % in the coming sowing season, as farmers were not satisfied with the price they got last year, says a study by the department of agricultural economics of Junagadh Agricultural University. The study suggests the area under cotton across the country increased to 12.65 million hectares in 2014-15 from 11.69 mn ha in 2013-14. The crop is estimated to be sown on 10.7 mn ha in 2015-16. However, the farmers groups feel that the cotton area may not shrink during the 2015-16 season, as sowing has begun in many of the cotton producing states. The good news for India is that cotton prices have started bouncing back recently and, therefore, there are hopes that the reduction in planting area may not exceed 10 %.

Domestic Market Summary:

Steady demand from domestic mills helped prices trade higher against limited availability in the market yards. Most of the Ginners and even the Government Agencies are holding onto their stocks at the moment as moisture content in cotton bales has reduced substantially, resulting in weight loss of the bales due to rising temperature throughout the country. They are expected to release their stocks sometime in June or July, when monsoon arrives as bales would regain moisture then. The domestic textile industry is primarily cotton based, with cotton accounting for nearly 54 % of the total fibre consumption in 2014. However, the industry is facing challenges like price fluctuation and inconsistent quality of indigenous cotton. The demand can be met only through production of high-quality cotton within the country. Further, the domestic textile and apparel market is now worth more than $100 billion and is still growing at a healthy rate. It has a potential to double the share of exports from the present 5 % to 10 % in the next 10 years. So the need of the hour is to produce good quality cotton at globally competitive price. China, the world’s biggest purchaser, has been cutting down its cotton import considerably. As a result, Indian cotton export is expected to fall to a 6-year low. The Cotton Advisory Board (CAB) estimates that cotton export will drop to 7 million bales by September 30 from 11.79 million bales in the same corresponding period last year, a drop of over 40 %. Cotton shipments from India have been recorded at around 5 million bales this season.

Cotton Corporation of India (CCI)

According to textile minister Santosh Kumar Gangwar, the government will likely incur record losses of around INR 2.5 billion on its cotton procurement operations, in the current marketing year.

The CCI has procured 8.7 million bales of cotton so far in 2014-15, just a little lower than the record procurement of 8.9 million bales in 2008-09. Moreover, cotton prices had remained subdued for a long time this year, thanks to plentiful supplies and poor demand for both the fibre and yarn from China.

Out of the procured stocks, the CCI has sold almost 1.5 million bales of cotton so far.

CCI is selling 70,000-75,000 bales (170 kg each) of cotton on a daily basis. CCI started offloading substantial stocks since April after the industry had complained to the textile ministry of an artificial shortage in the market created by the CCI. Refuting the allegations, CCI chairman B.K. Mishra earlier said the country was expecting a bumper harvest of 39 million bales in 2014-15, way above the requirements by textile mills, especially when export demand remained tepid.

Yarn

Poor demand in cotton yarn from domestic and overseas buyers has resulted in inventory built up leading to financial crunch in the industry, said a spinning mill owner from South India. Government’s decision to direct state authorities to close down textile units in various states on the grounds of releasing hazardous waste to nearby water sources is impacting the industry. Demand in yarn has slowed down. Grey markets have large inventory as printing process has slowed down, which would halt arrivals of finished product in market yards, eventually leading to tight liquidity on the whole.

International Market:

Cotton continued its steady rise in the international market. Reduced sowing reports have led to a change in sentiment. Under the new Chinese policy, its cotton stocks will not continue to build. When and how China chooses to dispose of its huge stockpiles will probably have lot of implications for world cotton markets.

China: As per fresh rumors in the markets, Chinese government has plans to auction around 1 million MTs reserve cotton during June, July and August this year. It plans to sell 300,000 MTs of 2011 crop domestic cotton at 13,200/Mt. 400,000 Mts of 2012 crop domestic cotton at 14,200/Mt. 300,000 Mts of old crop import cotton at 15,000/Mt. These prices are based on standard 328 quality, price of each lot will depend on premium/discount based on the re-classing result.

U.S.: The USDA says China had more than 60 million 480-pound bales of cotton in storage before it harvested or imported the first bale of cotton last year. That’s almost twice as much cotton as Chinese mills use each year and almost four times as much cotton as the United States produced in 2014. If China chooses to sell even a modest share of those stocks to its mills each year, it will reduce the demand for cotton imports from the United States and other countries. Concern about this possibility is putting downward pressure on cotton prices. This obviously has implications for U.S. cotton producers, but it also could be important to taxpayers. Although the new farm bill makes many changes in U.S. cotton policy, it retains a program that makes payments when prices fall below a trigger level; that level was breached in late 2014.

Turkey: In 2015, the Turkish planting area is expected to be about 3,80,000 hectares and production about 2.75 million bales, a reduction of 12% compared to last year.

Egypt: Cotton planting area is expected to be 93,000 hectares and production about 3,15,000 bales, a drop of 40% compared to the year before. The Government has stopped cash subsidies to farmers and spinners .The new policy requires farmers to have contracts with spinning and weaving companies based on Govt. fixed prices.

Important Reports:

USDA: ICE cotton futures rose to their highest level in nearly two weeks last week after a US Department of Agriculture (USDA) report showed strong export sales last week, but prices pared gains later in the session. Cotton contracts for July traded within a range of 64.27 and 66.59 cents a pound, the highest level since May 18. Some of the Investors are turning bullish and target December cotton futures to rise to 80-85 cents a lb over the course of the next several months

ICAC: In 2011/12, Chinese imports more than doubled from the previous season to 5.3 million tons and surpassed the total volume of imports by the rest of world, which reached only 4.4 million tons. However, in the following seasons, Chinese imports declined while imports outside of China have steadily grown. In 2014/15, imports outside of China are likely to increase 6% to 5.9 million tons, but will not offset the 45%decline in Chinese imports to 1.6 million tons. As a results world imports are projected down 12% to 7.5million tons in 2014/15. However, in 2015/16 world cotton imports may recover modestly, increasing 2% to7.7 million tons with imports outside of China rising by 3% to 6.1 million tons. Bangladesh, Vietnam and Indonesia are expected to be the three largest importers outside of China in 2015/16 due to the continued growth in their spinning sectors that rely primarily on imported cotton. Bangladesh’s imports are forecast at just less than 1 million tons in 2014/15 and are expected to remain stable in 2015/16. Vietnam’s imports are projected up 6% to 927,000 tons in 2015/16 and Indonesia’s imports up 4% to nearly 800,000 tons.

U.S. exports which experienced good demand for much of 2014/15, are expected to remain stable in 2015/16 at 2.3 million tons. On the other hand, India’s exports are projected down 50% in 2014/15 to 1 million tons, but could recover partially in 2015/16 to 1.2 million tons. World cotton area is forecast down 7% to 31.3 million hectares in 2015/16 due to low prices in 2014/15 and as a result, world cotton production is projected down 9% to 23.9 million tons. The announcement of a lower subsidy for 2015 in China is expected to lead to a 12% decrease in area to 3.8 million hectares. Production in China could fall to 5.4 million tons in 2015/16. Area in India reached a record 12.3 million hectares in 2014/15, but will likely decrease 5% to 11.6 million hectares in 2015/16. Applying the average yield in the last three years would result in a 2% decline in production to 6.4 million tons. Area in the United States is forecast to fall 15% to 3.3 million hectares due to low international prices and adverse weather conditions. Assuming a yield of 912 kg/ha, production in the United States is projected down 14% to 3 million tons.

World cotton consumption increased 3% in 2014/15 to 24.3 million tons and is projected to grow another 2% in 2015/16 to 24.9 million tons. Domestic cotton prices in China fell from an average of 139 cents/lb in 2013/14 to just under 100 cents/lb in the first five months of 2015 due to the ending of China’s reserve policy and a shift toward a more market-oriented policy. Assuming prices remain around the same level in 2015/16, cotton consumption is likely to remain stable at 7.7 million tons in 2015/16. Instead, consumption is expected continue growing in nearby countries. Consumption in India, the second largest consumer of cotton lint, is projected up 3% to 5.4 million tons in 2015/16. Despite strong competition from yarn imports, Pakistan’s consumption is expected to grow 3% to 2.6 million tons in 2015/16. World ending stocks are forecast to decrease for the first time since 2010/11, falling 5% to 20.8 million tons in 2015/16. Although China’s ending stocks are projected down 6% to 11.8 million tons, it would still hold 56% of the world’s stocks at the end of 2015/16. After increasing 19% in 2014/15 to 9.4 million tons, ending stocks held outside of China are expected to decline 3% to 9.1 million tons in 2015/16.

Indian Cotton Federation (ICF):

The Indian Cotton Federation (ICF) expects that in states like Gujarat and Maharashtra, farmers may shift from cotton to pulses and groundnut as they find cotton farming unviable due to untimely rains and lower than MSP prices.

Cotton Association of India (CAI):

The Cotton Association of India (CAI) has revised its cotton crop estimate for the season 2014-15 that begin on October 1, 2014 at 384.50 lakh bales (170kg each) from 391 lakh bales estimated a month ago. CAI’s April estimate is well below Cotton Advisory Board (CAB) India cotton production projection for 2014-15 at 390 lakh bales.

The Cotton Association of India (CAI) has pointed out that exports are lagging this year, and there is only a limited demand for Indian cotton. China, which imported more than 20 million bales of raw cotton in 2012-13, is forecast to import only 7.5 million bales this season, the CAI has noted.

Government Reports:

India’s textile and garment exports registered an almost flat growth at $41.4 billion in 2014-15, against $40.8 billion in the previous fiscal, falling short of this year’s target of $45 billion. The textiles ministry has set an exports target of $47.5 billion for the current fiscal. The government is finalizing the new ambitious national textiles policy that aims to raise exports to $300 billion by 2024-25 and create 35 million jobs. The textiles ministry has sought INR 130 billion for the technology upgradation fund (TUF) scheme for the 12th Five Year Plan (2012-17).Textiles minister Santosh Kumar Gangwar has stated that the government has approved 20 textiles parks under the scheme for integrated textiles parks (SITP) in the past one year. These are likely to create 75,000 jobs. Higher textile exports augur well for the economy as they accounted for 12.6% of the overall exports last fiscal and the sector employs 35 million people, having become the largest employer after agriculture. Govt. Releases 2014-15 3rd Advance Estimate For Cotton The government of India has released its 3rd advance estimate for 2014-15 cotton at 35.32 million bales. The estimate is slightly higher than its 2nd advance estimate, but lower than 2013-14 final estimates and higher by 2.85 million bales than the average production of last 5 years. Government’s 2nd advance estimate for 2014-15 was at 35.15 million bales and 2013-14 final advance estimates was 35.9 million bales.

Technical Reports:

  1. ICE COTTON

Higher Tops Higher Bottoms still in place, remain accumulate in dips market. Short term uptrend intact, but the rally yet to pick up steam. Ice Cotton can test 72-74 areas, which would be key hurdle. Below 62 areas, weakness can creep in again in short term. 57 now remains a key medium to long term bottom. Remains buy for short to medium term above 62 for targets of 74. Key Supports 63.00-62.00-59.83 57.30, Key Resistances 68.10-70.30-71.50-73.80.

  1. MCX COTTON

Short term uptrend intact, remains buy in dips market. Strong upside momentum expected if able to cross 16900. All significant dips can be used to accumulate for targets of 18000 levels in medium term, stop loss below 15200 advisable. 13970 remains a key medium to long term bottom. Key Supports 15900-15600-15430-15280, Key Resistances 16900-17250-18300-18700.

  1. ACE COTTON

Key Supports 33570-32450-31890

Key Resistances 35220-36000-36480

Top Interviews: 

About the author:

Mr. Manish Daga popularly referred by the cotton industry as COTTON GURU™ is a qualified textile technologist. He is India’s only Cotton Valuer registered by the Indian Institution of Valuers, India. He is the fourth generation in cotton trade, advisory and broking services from his family. The P. R. D. Cottons Group is 110 year old in cotton business with continuity. Call or mail for any information, suggestion, feedback or to know how our Company can benefit from the knowledge and experience of COTTON GURU™. Call on +91 9820072705 or mail to manish@cottonguru.org

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One thought on “CottonGuru’s Fortnightly Cotton Market Newsletter 09th June 2015

    RAJESHKUMAR A. SHAH said:
    June 13, 2015 at 6:04 am

    NICE INFORMATIONS FOR THE COTTON …..INDUSTRIES , MANUFACTURERS, TRADERS AND USERS…RAJESHKUMAR A SHAH

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