MONTHLY REPORT ON 06May2020

(May)

COTTONCOTTON

History

Globalcoronavirus-ledrestrictionsandlockdownshavesappeddemandforthenaturalfiberandapparel,withcottonpricesdeclining25%inthe

domesticmarket&38%intheinternationalmarketsofarthisyear.WiththerapidspreadofCOVID-19,thelatestUSDAreportfeaturedarecord

downwardadjustmenttodemand.Globalmill-usewaslowered7.6millionbalesrelativetolastmonth(to110.6million).Ifrealized,thiswouldbe

thelowestlevelsince2013/14(duetothepricespike,mill-usewasbelow110millionbalesbetween2011/12and2013/14).Uncertaintyishigh.

Giventhepossibilityforthediseasetore-emergeafteraninitialcontainmentandthesevereeconomiceffectsresultingfromshutdownsaroundthe

world,furtherdownwardrevisionsappearlikely.

Giventheseverity,afactorthatcouldcompoundtraditionalpriceeffectsisthattherecouldbefewertextilemanufacturersinbusinesstotakeorders.

Itremainstobeseenwhatsupportmeasuresmaybeofferedtoemergingmarketsandhowmanymanufacturersinthosecountriesmaybeforcedto

close.Ifclosuresarewidespread,globalmanufacturingcapacitymayrequireseveralyearstorebuild.

OntheMultiCommodityExchangeofIndia,cottonfutureshadhitayearlylowof15,170rupeesperbale,thelowestsinceMarch2016.Thecotton

spinningindustry,whichhadalreadybeenfacingmultiplechallengeslikelowdemand,unfavourabledutystructureandvolatilecottonfibreprices

isconfrontinganothertroubleintheformoftheCovid-19pandemic.Thecottonyarnexportshavetakenahit,mainlyonaccountofsubdued

demandfromChina.ItisreportedthatChina’smajorcottonyarndemandisnowbeingcateredtobyVietnam,whichenjoysduty-freeaccessto

China.

2

MONTHLY CHART OF ICE COTTON FUTURES

Source:Reuters

MONTHLY CHART OF MCX COTTON FUTURES

Source:Reuters

3

Domesticmarketinventories

Ÿ Thenation-widelockdownhaswashedoutdemandformade-ups,apparelandgarmentsduringweddingseasonandId,andislikelytoremain

dullforalongerperiod.ThegovernmenthasextendedthenationwidelockdownbyanothertwoweekstillMay17.

Ÿ ConsumptionbymillsinIndiaisprojectedtofallconsiderablyto26.5mlnbalesinthecurrentseasonfrom32.4mlnbalesintheyear-agoperiod

asmillsareholdingsufficientinventoryandwiththeslowdownbecauseofCOVID-19,millsmaynotneedcottonatleasttillJul-Aug.

Ÿ Exportsarealsounlikelytogainmomentuminthenearfuture.However,BangladeshistheonlymarketwhichmaypushIndia'sexports.

Ÿ Indiantradershavenotsignedanynewdealsforexportsafterlockdown.

Domesticmarketfundamentals

Ÿ Currently,millsinGujaratandMaharashtraarenotrunningfullcapacitybecauseoflabourshortage.

Ÿ Onthesupplyside,theinitialprojectionsshowthatthisseasontheacreageislikelytobehigher.FarmersinHaryana,PunjabandRajasthan

havetakentocottoncultivationprimarilyontwogrounds–higherincomeoverrelativelylessremunerativecropssuchaspaddyandguarseed,

andthelabourshortageforpaddytransplantation.

Ÿ Thisyear,cottonacreagemayslightlyincreaseinnorthernzone,butwouldbarelyoffsetthedeclineexpectedinotherpartsofthecountry.

Cottonacreage in central and southern India is likely to fall this year as farmers couldoptother competitive crops like soybean, urad,

groundnut,turmericandchilli,whichofferedbetterreturnslastseason.

Ÿ Cottonhadbeenplantedacross12.6mlnhainthecountryin2019-20,accordingtoCottonAdvisoryBoardestimates.

Ÿ Thisseason,theoverallacreageislikelytoremainlargelyatthesamelevelor5%lowercomparedwiththepreviousyear.

Source:USDA

Punjab 5405 5178.42 5903.12 4.38 -8.44

Rajasthan 5091.25 5039.85 6196.01 1.02 -17.83

Tamil Nadu 4481.2 4911.78 5759.56 -8.77 -22.2

Average 4648 4972 5916

State Prices Prices Prices % Change % Change April, 2020 March, 2020 April, 2019 (Over Previous Month) (Over Previous Year)

Gujarat 4668.03 4639.44 5900.55 0.62 -20.89

Karnataka 3826.04 4827.37 5759.11 -20.74 -33.57

Madhya Pradesh 4236.29 5104.49 5814.03 -17.01 -27.14

Maharashtra 4827.84 5101.27 6080.07 -5.36 -20.6

*ReportGeneration:AsperthedatareportedbyAPMCs Source:AGMARK

PricesinRs/QuintalSpotmarketupdate–Arrivals

StatewiseWholesalePricesMonthlyAnalysisforCottonMarch,2020

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• Whilethereishopeforavaccineorcure,orthatwarmerweatherinthenorthernhemispherewillminimiseCovid'simpact,therecanbenoreal

economicrecoveryunlessthereisahealthrecoveryfirst.

• In2020/21,globalareaisprojectedtodecreaseby4%to33mhectares,withIndiaremainingtheworldleaderdespiteplantingsdroppingto

12mhectares.Productionwilldeclinebyacomparableamountto25mtonnes.

• USDAWeeklyCropProgressReportshowedcottonplantingat18%complete(13%lastweek,16%lastyear,17%average).

Forthetimebeingitisdifficulttopredictthebottomasbecausewhentheretailstoresreopen,they'vegotrecordinventoriesofspringappareltoget

ridofandthey'renotplacingfallorders.Themarketparticipantsareholdingabearishviewonthiscommodityandthat’sthereasonspeculatorsare

stillholdingnetshortpositionincottonfuturesof11,485contractsintheweektoApril28.

Withlittlehopeofpricerecovery,marketparticipantswillcloselywatchtheacreagedataof2020-21.Theacreagenumbersmaynothelpturnthe

trendbullish,butmayjuststabilisethepricesifareadeclines.CottoncultivationistakingthecentrestageinNorthIndia.Onthebackoflastyear’s

higherpricesandpurchasesbytheCottonCorporationofIndia(CCI),farmersinPunjab,HaryanaandRajasthanareseenmovingawayfrompaddy

andguarseedtothefibrecropthisyear.

Intheinternationalmarket,recentlyICEcottonfuturesfelltotheirlowestinnearlytwoweeksonworriesthatanescalationinU.S.-Chinatrade

tensionscouldhamperChinesedemandforthenaturalfiber.ThemarketisnotgoingtobeabletorallyonChinesesalesbecausetheChinese-U.S.

relationsaredeterioratingsorapidlythattheoddsofsomebigsalegettingshippedinthedistantfutureareverylow.IfChinadoesbuyover4million

balesofU.Scottonforitsstrategicreserve,suchcouldbeseenasagamechangerwithrespecttoICEfutures.Sayingthis,itisexpectedthatthe

counterwouldfaceresistancenear60centsperpound&witnessingsellingpressure,itmaydescendtowards52-48centsperpound.

TheICAC'scurrentpriceprojectionfortheyear-end2019/20averageoftheAIndexhasbeenrevisedto71.4centsperpound.Thepriceprojection

fortheyear-end2020/21averageoftheAIndexis56.9centsperpound.Thiswouldbethelowestlevelsincetheglobalfinancialcrisisof2007-8,

whenpricesfellto49centsperpound.

U.SSecretaryofStateMikePompeosaidtherewas"asignificantamountofevidence"thatthenewcoronavirusemergedfromaChineselaboratory,

butdidnotdisputeU.S.intelligenceagencies'conclusionthatitwasnotman-made.ThisstatementcitesthatlargepurchasesbyChinaseemlikelyto

hingeonmitigationoftensionsbetweentheU.S.andChinaregardingblamefortheWuhanpandemic.

Internationalmarketfundamentals

• Globalcottonconsumptionin2019/20issettosuffera12%declineasdemandplummetsduetotheCovid-19pandemic,withyear-endprices

seenfallingtotheirlowestlevelsinmorethanadecade.

• Sincethebeginningof2020,cottonfuturespriceshavedeclined30%,asretailstoresaroundtheglobehaveshutteredandordersfromtextile

millshavedropped.ThelatestprojectionsfromtheInternationalCottonAdvisoryCouncil(ICAC)showa11.8%declineinconsumptionfor

2019/20,a4%decreaseinplantedlandin2020/21anda4%decreaseinproductionin2020/21.

• Withtheglobaleconomyparalysedandsupplychainsshattered,currentprojectionsshowan11.8%declineincottonconsumption,reducing

globaltradeto8.26mtonnesin2019/20.

Foresight

Lookingatthemonthlychartsofcottonfutures(May)onMCX,itisverymuchvisiblethatthereismoreroomonthedownsideforthecounter

tomarkanewyearlylowof14000.AfterasteepfallinMarch,cottonpricesareexpectedtofallfurtherindaystocomeasthenationwidelockdown

tocurbthespreadofthenovelcoronavirushashitdemandinthedomesticandoverseasmarkets.Demandfromthespinningandtextileindustryhas

declinedsubstantiallyandthatmayleadtoaglutinthemarket.Withtheaveragemonthlydomesticuseof2.5-2.7mlnbales,Indiahaslostalmost2

monthconsumptionsincethestartoflockdownonMar23.Withnofearofsupplyshortage,outlookforcottonintheneartermisbearish.Weak

demandandtradedisruptionacrosstheglobearelikelytokeepcottonpricesunderpressureinthecomingmonths.

Thedemandfortextileswillfaceheadwindsinboththemarkets,domesticandinternational.Theclosureofretailstoresandmallsonaccountof

lockdownsituationacrossthenationwillaffecttheindustry’ssales.Evenafterthelockdownislifted,demandfortextileswilltaketimetopickup.

Thisisbecausefootfallswillbelowinmallsandretailstoresaspeoplewillavoidvisitingcrowdedmarkets.

India’sexportscenarioremainsdepressedforthetopexportdestinations–Europeanmarkets,includingtheUKandtheUS(togethertheyaccount

forabout60%ofthetotalapparelexports)–giventhespreadofCOVID-19inthesemarketsandthelockdownsituationthere.

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Closingason4thMay,2020 Source:MCX

Forward curve of Cotton futures (MCX)

Closingason4thMay,2020 Source:Barchart

Forward curve of Cotton futures (ICE)

15700.00 15930.00

15970.00

16650.00

17400.0017500.00

17590.00

15600.00

16100.00

16600.00

17100.00

17600.00

18100.00

May Jun Jul Aug Oct Nov Dec

56.56

54.33

55.89

56.24

54.00

54.50

55.00

55.50

56.00

56.50

57.00

May July Oct Dec

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Vandana Bharti (AVP - Commodity Research) Boardline : 011-30111000 Extn: 625 vandanabharti@smcindiaonline.com

Subhranil Dey Sr. Research Analyst (Agro) Boardline : 011-30111000 Extn: 674 subhranildey@smcindiaonline.com

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