Ravindra Rao
After touching a high of Rs 20,150 per bale (170 kg) in the first half of January, MCX Cotton first month futures lumped by over Rs 1,000 in the last one month as the outbreak of coronavirus in world's largest cotton consumer and importing nation China stopped the bulls by its horns. Cotton active futures at ICE plunged by over 6 percent since the first half of January.
Cottonseed prices in physical markets, which had just started to move close to its MSP declared for 2019-20 season (Rs 5,550 per quintal for long staple), again declined below the threshold as demand for the fibre hit the road-block due to Covid-19.
As per a Business Standard article, one of India's top cotton exporters had halted cotton shipments to China amid concerns of coronavirus spread in the country. Prospects of lower exports and concerns over reduced demand by China as the country will be mired in dealing with the epidemic for some time now, have dented sentiments in all the major agriculture commodities, especially in which China plays a major role in global demand.
A respite was received from Cotton Corporation of India's (CCI) statement that they may procure cotton beyond its initial target of 100 lakh bales if the prices continued to reel under pressure. CCI also showed readiness to procure entire cotton crop produced by country's farmers if need be. As on first half of February, CCI had procured around 61 lakh bales of cotton so far.
Adding to the positive sentiments is news coming from Chinese official that they would accept application for new tariffs exemption for nearly 700 United States' products (including many agriculture commodities) from March 2nd.
Though positive cues from international market as US-China are closing in to end their over a year-long trade impasse and falling supply of cotton in domestic market augurs well for recovery in cotton prices from lower levels, apprehension of proliferating deadly coronavirus still looms large in the market. Hence, we are cautiously bullish On natural fibre for the medium-term unless situation of coronavirus spread doesn't get too ugly.
(The author is VP- Head Commodity Research at Kotak Securities.)
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