Domestic Cotton markets end the week on positive note: global fundamentals remain healthy

Cotton markets had registered impressive gains during the recently ended week. Kapas has surpassed the 1300 level comfortably and has been closing above this mark since last couple of days. Cotton cake and cotton 29mm prices are also maintaining strong trend these days. Under a bullish price scenario, the April month’s USDA seems to add fuel to the market from buyers’ perspective. 

The 2020/21 U.S. cotton supply and demand forecasts show higher exports and lower ending stocks relative to last month. Production and domestic mill use are unchanged. The export forecast is raised 250,000 bales, to 15.75 million, based on the pace of recent sales and shipments. Ending stocks are now forecast at 3.9 million bales, equivalent to 22 percent of total usage. The marketing year price received by upland cotton producers is projected to average 68 cents per pound, a reduction of 1 cent from last month.  

Considering the lower global 2020/21 beginning stocks in April, slightly lower production and higher consumption, the USDA now sees world ending stocks 1.1 million bales lower, while projected trade is seen above 9 lakh bales versus last month’s estimate. The US Agriculture Department has estimated 2020/21 beginning stocks 4.27 lakh bales lower than in March, because of significant upgrading of the consumption estimate of Vietnam for the previous year. Likewise global cotton production is projected 2.76 lakh bales lower than the previous month, after considering production declines in Australia and Turkmenistan, while rising domestic textile demand in China has prompted the USDA to increase the world cotton consumption estimate for 2020-2021 by 387,000-bale versus year 2019-2020.  

World trade estimate is raised by 9.35 lakh bales to its highest projected level in eight years, with China’s imports projected 7.5 lakh bales above the previous month, while imports from Bangladesh’s are estimated higher by 2 lakh bales. Cotton exports for this year are expected higher from Brazil, the United States, and Egypt.  

For India’s cotton export opportunities shall prevail in coming months thereby keeping chances of further appreciation of prices. One has to track the developments related to Pakistan’s response towards purchasing cotton from India. Historically, India was a leading supplier to Pakistan. However, after a 2019 border closure between the two countries, Pakistan’s mills have been prohibited from importing the world’s lowest-priced cotton. On March 31^st hopes revived on this aspect after ECC the top economic body of Pakistan proposed allowing imports from Pakistan. However the Pakistan government rejected the proposal the very next day. Still the markets were not been affected much after this news and in fact maintained firm trend till end of the week.  

As per trade sources Pakistan has so far imported roughly 688,305 metric tonnes of cotton and yarn but still there lies a deficit of about 3.5 million bales, which needs to be offset through imports. Importers from Pakistan were forced to purchase from the United States, Brazil and Uzbekistan. Importing from India will be a cheaper option, and would reach Pakistan within three to four days only. Pakistan ranks amongst the top cotton spinning nations. In case India is allowed to export to Pakistan then it will enhance the domestic consumption further.  Consecutive year shortfalls in domestic production have depleted supplies in Pakistan and as per the USDA the 2019/20 harvest was the lowest in over 3 decades, with 2020/21 crop down 27 percent. 

Business volume is improving in India since the requirements of cotton products (for health and hygiene purpose) are on rise. Demand from clothing and textile industry is also improving. The Cotton Corporation of India (CCI) plans to export at least 10 lakh bales of cotton during the current season. Average prices of domestic cotton may remain higher in forthcoming weeks as global fundamentals still remain healthy.