According Angel Commodities, cotton prices is expected to trade sideways on lower physical demand from the mills and need based buying by the ginners and mills are pressurizing prices.
Angel Commodities' report on Cotton
Kapas
Cotton complex closed lower on Friday on profit booking at higher levels. NCDEX Kapas closed lower by 3.30% while MCX cotton closed down by 0.73%. However, some stockists and ginners are interested to buy more cotton on forecast of lower production by department of Agriculture, GoI. Moreover, recently government decided not to buy further cotton under MSP as prices are higher due to good exports demand. State-run CCI has purchased 8 lakh bales so far in the 2015-16 marketing year and decided not to buy more as domestic prices have firmed up slightly after demand from Pakistan.
Domestic update
Cotton Advisory Board estimates cotton production at around 33 million bales (170 kg each) for the October 2015-September 2016 crop year against 38 million bales in the previous year.
Moreover, India's exports in the current year that started on Oct.1 could rise to 7 million bales, up from 5.77 million bales a year ago, due to good demand from Pakistan. Pakistan is buying more cotton than expected from India after floods cut its own crop to the smallest in over a decade. the country has already exported 40 lakh bales of cotton so far this year, of which 20 lakh bales were shipped to Pakistan. The projected balance sheet drawn by the CAI estimated total cotton supply for the season 2015-16 at 449.65 lakh bales while the domestic consumption is estimated at 315 lakh bales, thus leaving an available surplus of 134.65 lakh bales.
Global Cotton Updates
ICE Cotton futures closed lower on worries over excess inventories in China and the US market despite higher exports. U.S. export sales of upland cotton totaled 308,800 running bales, a marketing year high, in the week ended Feb. 11, up 36 percent from the previous week, according to U.S. government data released on Friday.
As per latest USDA Feb’16 report, world cotton production is forecast to fall by close to 15% to 22.07 mt, which is 3.87 mt lower than projected production in 2014/15. Cotton production in two major countries— China and the US—will decrease by 19 % and 18 % in 2015-16 due to fall in cultivation fuelled by less demand and higher cotton stock worldwide, according ICAC.
China is in its fourth consecutive season of declining production, and its volume in 2015/16 is projected down 19% to 5.3 mt. In the US, a 13% reduction in harvested area and lower yields are expected to cause production to fall by 18% to 2.9 mt. Production in Pakistan is forecast at 1.9 mt in 2015/16. According to Reuters calculations based on trade figures released on Wednesday, China's cotton imports dropped to their lowest at 1.48 mt at least 9 years in 2015.
Outlook
We expect cotton prices to trade sideways on lower physical demand from the mills and need based buying by the ginners and mills are pressurizing prices.
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