Cotton Complex October 22, 2014

MARKET RECAP Cotton complex recovered from lower levels yesterday due to short coverings. MCX Cotton Oct contract closed at Rs 16,240/bale, up by 0.93% and NCDEX Kapas April’15 contract closed up by 0.77% at Rs 782.50 per 20 kg. Internationally, most active contract of ICE futures U.S. settled up by 0.80% at 62.79 cents/lb.

MCX Cotton (Rs. /Bales) Contract P. Close High Low Close % Change Volumes % Change Open Interest % Change Oct-14 16090 16270 16000 16240 0.93% 403 -12% 751 -10.81% Nov-14 15590 15850 15520 15770 1.15% 1231 20% 2238 -0.27% Dec-14 15620 15830 15540 15760 0.90% 765 121% 4903 2.98% Total 2467 17% 7960 1.44%

NCDEX Kapas (Rs. /20Kg.) Contract P. Close High Low Close % Change Volume (MT) % Change OI % Change Apr-15 776.5 784.0 773.5 782.5 0.77% 3675 -40.09% 9467 -0.73%

ICE Cotton (ct/lb)

Contract Prev. Close High Low Close Change % Change Dec-14 62.29 63.63 62.10 62.79 0.50 0.80% Mar-15 61.70 62.25 61.53 61.91 0.21 0.34%

CALENDAR SPREADS- MCX Contract Oct-14 Nov-14 Dec-14 Rs. % Rs. % Rs. % Spot 340 2.14% -130 -0.82% -140 -0.88% Oct-14 -470 -2.89% -480 -2.96% Nov-14 -10 -0.06%

SPOT PRICE Market MCX Cotton(Rs/Bales) 21-Oct-14 20-Oct-14 Change Basis Rajkot 15900 16010 -110 (340)

MARKET ARRIVALS State Last Day This Month Crop Year YoY 2014-15 2013-14 2014-15 2013-14 2014-15 2013-14 comparison Gujarat 9708 101 120057 63443 120057 63443 89% Maharashtra -- 552 24 667 24 667 -96% Andhra Pradesh 1024 1 14308 11912 14307.6 11912 20% Overall India 35817 9464 373539 251840 373539 251840 48% Crop Year: Oct-Sep

82, Free PressHouse | Free PressJournal Marg | Nariman Point | Mumbai 400 021 | India tel ephone email website +91-22-61940202 [email protected] www.mecklai.com r egister ed officeMecklai Financial Services Limited | 101Mahatma Gandhi Road | Mumbai 400 023 | India Total arrivals in major spot markets of India were reported at 35,817 MT yesterday compared to 30,941 MT reported on previous day. MARKET DYNAMICS India:

Prices were quoted up by Rs 15-20 per maund. In Punjab, ready delivery new cotton traded at Rs 3,375-3,385 a maund. In Haryana, it offered at Rs 3,325-3,335 while in Rajasthan, ready delivery new cotton quoted at Rs 3,250-3,330 a maund. Gujarat Sankar-6 variety was traded at (old crop) Rs 33000-33500 per candy of 356 kg for best quality Cotton while medium grade Cotton traded flat at Rs 32000-32500 per candy. V 797 cotton offered at Rs 24,500-25,500 a candy. While in Maharashtra, A-grade cotton high micronaire quoted at Rs 33,000-33,500 a candy.

Cotton Advisory Board (CAB) released its latest estimate for 2014/15 season (Oct.- Sep.) whereby production is placed at 40 million bales (170 Kg each), carry forward of 3.20 million and imports of 700’000 bales resulting in total supply of 43.90 million bales. Total mill consumption is estimated 30.10 million bales, non-mill at 1 million and exports are projected at 9 million bales (compared with last year's 11.8 million bales) adding to total use of 40.10 million and closing stock of 3.80 million bales. New crop arrivals are slowly increasing across the Northern Zone, Gujarat, Maharashtra, Andhra Pradesh and Karnataka state.All India daily seed cotton arrivals continued in the range 25,000 to 30,000 lint equivalent bales (170 kgs) but expected to increase after Diwali holiday. Tropical storm Hudhud has bypassed most of the cotton area and no damage has been reported. Local press reports stated, the Cotton Corporation of India (CCI) will be in a position to commence buying seed cotton at the MSP from next week in Andhra Pradesh, where local prices not very far from the support price level.

Cotton purchase by the Cotton Corporation of India (CCI) has not begun on the first day on Monday as scheduled at Adilabad market yard as the CCI officials refused to pay an MSP of Rs 4,050 for cotton with more than the permissible 12% moisture. The CCI did no business on the first day of cotton purchase. Irked over the development; farmers staged a rastaroko at the market yard till evening.

According to the latest report released by USDA, India is likely to produce 6.750 million MT of cotton this season (Oct'14-Sep'15), unchanged from estimated output of the previous season. World production is likely to be around 25.990 million MT this season compared to 26.039 million MT previous season. India is likely to witness drop of 47% in the cotton exports this year at 1.089 million MT compared to 2.047 million MT a season before. World cotton export is expected to fall to 7.490 million MT in 2014/15 which was 8.908 million MT in 2013/14.

USA: ICE Cotton futures recovered from lower levels on Tuesday on short coverings at lower levels and crop concerns due to dry weather and settled 0.8% higher at 62.79 cents/lb. The ICAC reduced its outlook for world inventories by the end of the 2014/15 crop year to 21.47 million MT from 22.25 million MT estimated earlier. USDA’s October U.S. cotton supply/demand balance sheet projection saw another downward adjustment in U.S. production from 16.54 to 16.26 million bales. Like the September adjustment, this month-over-month production cut came from lowering the average U.S. yield from 803 lbs. to 790 lbs. per acre. The bottom line of the October report is a 300’000 bale tightening in ending stocks. Meantime, a significant amount of rain has fallen on the Delta and to a lesser extent on the Southeastern crop. Some yield loss can be expected, but there’s no need to get too alarmed over this possibility. Quality loss is another story, and much more likely to be the case, but there’s a home for every bale regardless of quality. Any shortages or excess in certain qualities will eventually be worked out in the basis. Another consequence of the harvesting delays,

Available supplies remain tight in the short-term and continue to affect the inversion between December and March futures.

China: China imported around 122,900 MT of cotton in September this year, 39% lower compared to same month last year, reported China Cotton Association (CCA). During the initial nine month of the year, China imported 2 million MT of cotton, 38% lower compared to same period last year. Seed cotton procurement prices have been firming up lately. One reason is that early pickings show yields in Xinjiang are below expectations; another reason is that mills are running short of cotton and have to buy some. One of the large mills in Shandong released its purchasing price for local T328 at 14,000 Yuan/ton. Import demand is very slow due to higher ICE. The re-allocation of processing import quota has not been completed yet. Therefore mills have to postpone their buying decisions for import styles. China imports are projected to diminish to half this season on announcement of revision on import quota policies. The country is likely to import 1.524 million MT of cotton this season 50.4% lower when compared to 3.075 million MT in 2013/14.

Pakistan: According to Cotton Crop Assessment Committee (CCAC), Cotton production in Pakistan is lagging behind the target set for the current season due to flood that has damaged the standing crop badly. Cotton production in the country would stand around 13.539 bales (of 170 kg each) in the season 2014/15 against the target of 15.1 million bales earlier expected by the Government of Pakistan.

TECHNICAL ANALYSIS

On the daily chart, MCX Cotton prices are trading below long and medium term moving averages. However, prices have slightly recovered from lower Bollinger band. Other indicators like RSI and MACD are indicating mix signals on current levels.

OUTLOOK Cotton complex are expected to crawl up bearish today due to extended short covering. However weak export demand, higher sowing and higher output will keep pressurizing the prices.

Intraday support and resistance S3 S2 S1 Pivot R1 R2 R3 MCX Cotton Oct-14 15800 15900 16070 16170 16340 16440 16610 NCDEX Kapas Apr-15 765.5 769.5 776.0 780.0 786.5 790.5 797.0

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