The market looks to remain volatile into next week as traders try to sort out the impact of the India export ban. There are ministerial meetings in India on Friday to determine if outstanding sales from India will be honored. If so, there will be considerably less “repositioning” of China cotton buyers to US or Australian exporters. If India allows cotton under contract to move out of the country, there will be less need by China textile mills to scramble to secure more cotton. There is a plentiful supply of cotton worldwide and stocks look to grow for the coming season but some traders see much of the old crop US supply of cotton near sold out. As a result, if the export ban continues as is, the market may need to see further upside to pull the supply out onto the global market. The market closed lower yesterday for the second day in a row as news of the India Friday meetings were more well known. Traders see a surge in world ending stocks to up to 60% of the world consumption for the 2012/13 season and the market was in the process of “pricing in” this large surplus before the India news. Australia and the US are likely to see a jump in short-term export activity and then the focus is likely to shift to the new crop supply/demand situation. Traders will be monitoring the weekly export sales news this morning. The cumulative data would suggest that US exports need to be revised higher which could help tighten old crop ending stocks for the report on Friday or for the supply/demand updates in the next few months. Certified cotton stocks deliverable against the New York contract increased to 112,305 bales from 112,267 bales the previous session and from 142,095 bales last week.
Traders who press the short-side of the market must believe that the India government will allow the outstanding sales on the books to go through. This is coming just a few day’s after the ban went into effect. The supply/demand news on Friday is also likely to hold a bullish tilt if exports are revised higher. The longer-term price outlook is uncertain but in the short run, the industry will need to replace the India flow of cotton north into China and this may be difficult. News of a review of the ban on Friday just adds to the uncertainty.
Technical Analysis
COTTON (MAY): Positive momentum studies in the neutral zone will tend to reinforce higher price action. The close below the 9-day moving average is a negative short-term indicator for trend. It is a slightly negative indicator that the close was lower than the pivot swing number. The next upside objective is 92.17. The next area of resistance is around 91.01 and 92.17, while 1st support hits today at 89.23 and below there at 88.60.
StockMarketNews Research Team