Cotton market dull ahead of Eid holidays

LAHORE: The local cotton market on Saturday remained dull and trading volume remained low.

Cotton Analyst Naseem Usman said that the rate of cotton in Punjab and Sindh is between Rs 18000 and 21,000 per maund.

The World Bank’s raw material price index, which had been broadly stable through end-2021, made moderate gains in the first quarter (Q1) of 2022—up by 2.8 percent quarter on quarter (QoQ). Cotton prices are expected to be nearly 40 percent higher in 2022, before easing 6 percent in 2023 as weather-related challenges unwind, a report from the bank said.

However, one of the index’s two key components, cotton, followed a diverging path in response to reduced cotton supplies. The index is expected to rise marginally in 2022 and stabilise in 2023.

Risks to the outlook emanate from weakening demand due to lockdowns, especially in China, the World Bank said in its ‘Commodity Markets Outlook: The Impact of the war in Ukraine on Commodity Markets’.

Cotton prices continued their upward trend that began in early May 2020 to reach an 11-year high in March. Prices have increased in 20 of the past 23 months.

The overall price strength reflects gradual improvement in the outlook for global demand, which is expected to average 26.2 MMT in the current season, 2 percent higher than 2020-21. This outlook is a marked improvement over the previous season’s pandemic-related contraction of more than 13 percent.

On the supply side, global production is projected to increase by 8.4 percent, led by the world’s largest exporters— Brazil and the United States (with shares of about 20 percent each).

Production in China and India, the world’s largest producers, is expected to decline marginally due to weather-related challenges. The week ending Friday, April 29 saw the most active Jul’22 ICE cotton contract bottom from the previous week’s slide, before springing up twelve cents in two limit moves (see chart above courtesy of Barchart.com).

The Jul’22 settled the week at 145.63 cents per pound, down two cents on the day. The new crop Dec’22 contract followed a similar pattern, peaking over 126 cents per pound before settling Friday at 122.07 cents per pound, down three cents on the day.

Chinese prices continued flat this week and below the up-trending A-index.

Cotton-specific influences this week included stronger US cotton export sales and continued strong shipments. Lastly, a rumour of an Indian cotton export ban apparently fuelled mill fixations in addition to speculative buying.

ICE cotton futures open interest bottomed early and then rose across the latter part of the week. The concurrent rise in futures price settlements suggests long liquidation.

However, the regular Tuesday snapshot (through April 26) show only a small amount of hedge fund short covering (732 contracts) offset by a large amount of long liquidation (3,260 fewer hedge fund longs and 2,243 fewer index fund longs, week over week). So we will have to wait another week for evidence of new long positioning.

In contract to surging ICE cotton futures, CBOT corn and soybean futures prices were flat to higher across the week, while KC wheat futures were flat to lower. The US dollar index continued it’s recent rally, but appeared to peak at week’s end.

The Spot Rate remained unchanged at Rs 21000 per maund. Polyester Fibre was available at Rs 290 per kg.

Copyright Business Recorder, 2022