As Indian cotton season is looking to start early main talk of the town is how the market will work in next season. What strategy to apply to predict rates of coming season. There are a lot of Bull and Bear factors to discuss before preparing to trade for next year. India cannot stay very high or very low as compared to global markets so we might consider world scenario of demand and supply before taking position on either side. Indian MSP is too high today as compared with global countries. Will India remain too high to allow more imports? What government agencies would do with old stock? These all equations are like puzzles. Here we would like to discuss whole scenario in Indian aspect.
Global
Supply
Due to lockdown in all cotton consuming countries consumption has declined. As par WASDE Consumption was predicted 121M bales on pre-covid stage. Now after covid, consumption comes to 102M. So finally this year’s consumption declined by 19M bales. Ultimately it is carried forward as opening stock for next year. So global opening is highest in decade.
As current year’s monsoon is good in all cotton producing countries, consomption of current year is predicted 113M bales against production of 117M bales. Thus as supply wise cotton consumers have to enjoy easy flow.
Demand
Demand of cotton depends on final demand of garments and cloths. Yet weaving and knitting sector has not started with full flow. Cheaper crude also offers cheaper synthetic fibers. As par WASDE consumption of cotton predicted bales will be 4M bales lower than yearly production. In other term ending stock will increase by 4 M bales.
Supply and demand in India
India has some different scenario. First time in history India will open new season with more than 10M bales of 170kgs. But this stock will be lying mainly with the government agencies. Indian spinners have yet no option. India is cheaper and import is costly. New season looks to start early. Current market rate are far below compared to MSP. The question is will the farmers offload kapas at current rate? Definitely supply will start with good flow in October.Indian spinners are enjoying to spin cheaper cotton with multiple varieties. They have excellent demand from globe. CCI also offering cotton at reasonable price levels. Spinners who export the yarn can run mill with full flow. Domestic weaving sector is not doing well so demand is poor for domestic sales. As per the current scenario, consumption will resume in next season but it will be somewhat near to 30M bales and does not look to meet pre-covid time yet.
Bear On globe
- Opening stock is highest in decade.
- Garment demand yet to take time to resume.
- People prefers cheaper and cheap crude will give cheaper option of polyester.
- With current low demand Brazilian new crop is in market with attractive basis.
- Abroad buyers has got India on negative basis this year. To change this mindset it will take time.
- Main importer China does not have good political environment.
For India
- Better monsoon and bright picture of upcoming season.
- Huge carryover with CCI.
- Weaving sector is not in full operation so domestic demand is lower.
- Cash crunch in domestic market.
- Indian for-ex reserve is enough so Indian rupee can appreciate from this level.
Bull on globe
- Money printing by all government has provided over liquidity. Interest rate in developed countries is zero. So money transfers to commodity.
- Inflation ratio will increase which will result in commodities prices to be higher.
- Government purchase in US, China, and India is supportive to price level.
- World’s basis work with NY. US crop is predicted lower. If NY remain firm due to low crop and funds buying than to hedge cotton will be costly.
- Price level is on lowest of last five year while inflation is increasing.
For India
- Higher MSP.
- Old stock in monopoly of CCI.
- Cheapest in world so when demand resumes it will come to real value.
- predict next seasonAt present Indian spinners spins at most competitive prices so raw cotton and cotton yarn exports will be higher than expected.
Indian cotton season looks to start early to give some liquidity to market. As due to negative basis, basis players has purchased CCI’s cotton. Some local traders also play with CCI’s stock. Old stock with MNC and traders are also in market to sell. Market has given them opportunity with uptrend. Very poor arrival and nearly monopoly of CCI, market is in uptrend. It will be interesting to watch battle with new crop pressure and tight mood of old crop stockiest.
Over all for Indian cotton traders main confusion is of the farmers’ mood to sell 15 to 20%cheaper in open market or not. When will cci start operation? Will CCI buy with same aggression?
Fundamental of globe are bearish but basis of India is negative. India cannot remain on negative basis for long time. Cheaper India can improve the basis. Indian cotton will not face equal bearish effect with globe.
Demand also not better. But Indian opening stock is in monopoly with CCI and for coming year also CCI is going to be main rivals for ginners. So direction of Indian cotton rate will be decided by the policy of CCI.
Stay calm and watch all Bull-Bear factors and prepare for next year.
Wish all cotton friends earning and stress less new season.
S.Ajaykumar & co, Ahmedabad
