Cotton futures contracts on the Multi Commodity Exchange (MCX) nearly doubled in the December 2019-February 2020 period, as the coronavirus outbreak in China has spread some panic among traders and industry, according to the exchange and traders. China leads the world in cotton production, followed by India and the US, and any disruption in production and supply from China is bound to send prices spinning out of hand, said traders.
Both volume and value of cotton futures contracts traded on the MCX nearly doubled between December 2019 and February 2020.
While the volume stood at 6.67 lakh bales as on December 31, or worth Rs 1,286.51 crore, the same spiked to 12.28 lakh bales valued at Rs 2,344 crore as of February 29, according to the exchange data.
However, this is a tad lower than the January volume when it stood at 13.27 lakh bales or Rs 2,621.16 crore. Traders and the MCX attributed the fall to stockpiling by the industry ahead of the long new year holidays in China in February, which though was a washout this year due to the epidemic that has so far killed over 3,100 people in that country alone and over 400 across 105 other countries.
But, Rishi Nathany, head of marketing at MCX, attributed the jump more to the better price discovery through the exchange as the primary reason coupled with the fear sentiment among traders.
"Trade and industry are increasingly realising the value of futures contracts as a transparent way for better price discovery and risk mitigation and also as a hedge against uncertain market outcomes in a volatile global supply-chain setting," he told PTI on Monday.
Since its launch in October 2011, cotton futures have quickly been accepted as the benchmark by the cotton value chain, he added.
"Though there is no real panic yet, we are worried about possible supply disruptions due to the coronavirus outbreak in China. We are assessing the situation and have also taken all the steps to ensure smooth supply at fair value by hedging large part of our requirements," Mahesh Sarda of Din Dayal Purshotamlal, a city-based cotton trader, said.
Cotton arrivals remained thin through the current season which started in October 2019 due to late monsoon and high moisture content in the air hampering crop.
The Cotton Association of India has retained its output estimate at 354.50 lakh bales for the current season that runs through October 2019 to September 2020.
Domestic consumption is estimated for the entire crop year at 331 lakh bales, while export is estimated at 42 lakh bales. Between October and January 2020, exports stood at 20 lakh bales.