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Sharad Mistry
Mumbai: The June delivery of Indian Cotton Contract (ICC) that began being traded on the East India Cotton Association (EICA) on Friday showed slight improvement in the otherwise declining cotton futures prices. The higher prices for the June delivery were up because of the vyaj badla charges that are incorporated in the sluggish prices and does not in reflect any bullishness in the sluggish cotton prices.
Cotton futures have been lower for both February and the April delivery contracts, so also, the spot prices of varieties similar to those being traded on the futures market too were sluggish.
After opening on Friday at Rs 4,981 per quintal, the June delivery ICC closed at Rs 5,000 per quintal, slightly higher than the day's highest of Rs 5,001 per quintal. The February 1999 delivery ICC closed steady at Rs 4,855 per quintal, down from Rs 4,885 on January 29 and Rs 4,912 on January 5.
On December 5, the contract had opened at Rs 4,811 only to jump to Rs 4,925 -- the highest till date -- and closed atthat level.
Trading in the April 1999 delivery of ICC began on December 11. The April delivery contract closed on Friday lower at Rs 4,950 after opening at Rs 4,954 per quintal, down from Rs 4,980 on January 29. On January 5, there was no trading for the April delivery contract, but the contract had witnessed the highest price of Rs 5,007 on January 22.
Ample supplies against shrinking demand and inflow of cheaper imports over the next couple of months are likely to put collective pressure on the futures prices, traders said.
Two months after the commencement of cotton futures on the EICA, the ongoing demand-supply situation has prevented the small number of EICA members (who have opted for trading in cotton futures) from increasing their overall interests and commitments on the futures market. Though the first day (December 5) saw the highest number (17 units) of ICC units (of 55 bales of 170 kg each) being traded, the average number of units traded on EICA has remained to around just 4-5 units only,thereby indicating that the overall volume of trading is still at a low ebb. On Friday last, the total number of units rose to six for the June delivery contract.
To top this, there was no trading in the February delivery contract for around 11 days (since December 5), while for 13 days there was no trading in the April delivery contract. Further, the high level of investments required for futures trading that call for heavy daily margins and relatively restrictive trading conditions remain major reasons, among others, for poor trading in the maiden ICC.
The due date for February delivery contract would be on February 26. As the February delivery contract comes to an end, the EICA authorities have applied to the Forward Market Commission to commence trading for September 1999 delivery contract. According to industry sources, the current and near future supply position of cotton remains uncomfortably larger than the demand for cotton in the country. To top it, the demand from the ginning and compositetextile mills too has been shrinking consistently.
The industry began the cotton year with a high cotton estimate of around 170-175 lakh bales, substantially higher than that of last year (158 lakh bales).
The availability has been scaled down with each estimates of the Cotton Advisory Board (CAB) and cotton trade. The latest estimates are now placed at around 160-162 lakh bales, which though down from the original estimates are still larger than last year.
A fresh meeting would be held this week to assess the situation once again. The carryover stock of around 30-35 lakh bales will add further to the overall availability of cotton in the country. To top this, anticipated exports of just two lakh bales are unlikely to be materialised as Indian cotton is outpriced compared to the international cotton. The price of international cotton is falling even when reports of lower cotton production in some of the major cotton producing countries (USA and China) while the overall consumption is said to be rising,though slowly. China, for one, instead of buying cotton as in the past has been selling cotton in the world market, which has kept international cotton prices low.
Cheaper international cotton has prompted cotton consuming mills and importers to book cotton for as long as September this year, thereby increasing the total availability of cotton in the Indian market.
And imports of cheaper cotton is said to be in the region of around 10 lakh bales against five lakh bales estimated earlier.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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