Tri Une Impex Consultant

*Currently ICE is in grip of funds leading to unreliable hedging platform

*ICE cotton briefly went over $1.16 a pound on 12 October the highest level
*since July 2011

*In October/November 2020 the 70 cents level gave way to higher prices

Vinay Kotak
Kotak Ginning and Pressing Industries Pvt. Ltd.

Raw material prices have surged in 2021, in part, due to increasing demand and supply-chain issues worldwide. “When people in the “white gold” market speak of prices, they are usually referring either to the Cotlook “A” Index or to the latest prices quoted for the nearby futures contract on ICE Futures in New York. Futures prices on ICE cotton briefly went over $1.16 a pound on 12 October, the highest level since July 2011. Currently ICE is in grip of funds leading to unreliable hedging platform and futures price are quoted at 100/110 cents. It may delink with spot market.

Many readers might well remember that in March 2020, during the early days of the pandemic when it price reached rock bottom at 48.35 cents, the lowest price in over a decade since 2009. Cotton futures recovered and rose above 50 cents by the end of April 2020. In June, the fluffy fibre eclipsed the 60 cents level, and in October and November 2020, the 70 cents level gave way to higher prices.

As per our calculation we predict ICE New York cotton technically price range will be 105 to 120 cents and fundamentally it could be 95 to 100 cents. For Indian Sankar-6 cotton price range will be Rs. 54000 to Rs. 63,000 per candy. Who will win? It’s a most critical question. If ICE remains above 100 cents for longar time it may lead to demand destruction unless this high price can be passed on to consumers buying finish product.

High volatility and high price level can lead to shift of consumers from cotton to manmade fibre. Now, analysts wonder how consumers might react to increased cotton prices in the months ahead. Global cotton output for the 2021-22 season, the International Cotton Advisory Committee (ICAC) has indicated that the crop will be around 120.28 million bales (each 480 pound or 218 kg), last year it was 112.16 million bales.

With expected rise in the output in the growing countries of Australia, Brazil, and the US over previous year, offset declines in India, Greece, and several countries in West Africa’s Franc Zone, but still be lower than the pre-pandemic levels. Few Producers countries of cotton have suffered from the impacts of climate change, including extraordinary drought, hurricanes, or floods. India’s cotton scenario is likely to be bright.

Our estimates for Indian cotton output estimated for the season 2021-22 at 36 million bales (each of 170 kg) almost same as against for 2020-21. If we count carry over stock 7 million and import 1.2 million current season total supply will be 44.2 million bales for the 2021-22. Estimates cotton consumption 33.5 million bales and export closing carryover stocks will be 5.5 million bales. If we count 39 million bales demands estimate, carryover stocks will be 5.2 million bales for the season 2021-22. Despite the heavy flooding following recent incessant rains in the growing regions of Gujarat, the crop is likely to be around 9.5 million bales in the State.

The world ending stocks for 2020/21 has been revised downward to 97.65 million bales, leading to the world cotton import to be around 46.45 million bales for the 2021/22 season against 48.96 million bales 2020-21. The global domestic consumption is estimated at 123.4 million bales against 119.93 million bales. Chinese cotton import project for the current marketing year to be 10.5 million bales, against 12.87 million bales. US export sales of cotton to China since Aug. 1 surged 83% on a year-on-year basis.

ICAC noted that the global cotton trade stood at the highest levels ever in 2020/21. For the coming season shows that industry sentiment remains positive especially given the robust levels of retail sales of textiles seen in many developed countries. Bull markets tend to move much higher than logic, reason, and rational analysis suggests possible.

In March 2011, cotton reached an all-time high at $2.27. During the global financial crisis in 2008, the price fell to a low of 36.70 cents before exploding higher and peaking in 2011. In late 2021, cotton is exploding higher on the back of pent-up demand in the wake of the coronavirus and ongoing supply chain issues.

Riddhi Siddhi Bullions Ltd

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