In 2022, cotton prices may decline but palm oil will scale new highs
Cotton prices may continue to rally in the coming quarters and are likely to cool-off in the second half of 2022, while palm oil prices are expected to hit new highs on robust demand and tight supplies in the new year, commodity analyst T Gnanasekar, Director, Commtrendz Research, said on Thursday.
Addressing a webinar on Commodities Market Outlook 2022, organised by Business Line, Gnanasekar said cotton, after making decade highs, has been caught in the range at this point in time. On the Intercontinental Exchange (ICE), the benchmark for cotton prices globally, cotton tested $1.20 per pound recently and is now consolidating, taking a breather at this point in time.
“With the sort of economic recovery we are seeing and the post Covid demand with online business picking up for garments, there is a tremendous scope for prices to rise. In fact, crude oil prices are also impacting prices in a big way because polyester prices are determined by how crude oil prices move. So, if crude oil continues to rise, there is a good chance for the market to move to natural fibres and that will drive cotton prices even higher,” he said.
Presenting the technical view, Gnanasekar said there’s more upside in the coming quarters and this $1 per pound will be “very stable”. “We would see much higher prices going forward. Prices are somewhere around $1.10 right now and there’s some way to go. Technically the target is $1.4 per pound for 2022 for cotton is concerned,” he said.
Citing the CFTC’s recent Commitments of Traders (COT) Report, Gnanasekar said the market is expecting prices to come down in March 2022. Textile mills have taken a view that by March prices will start coming down because of arrivals and various other factors, he said.
In the domestic market, cotton prices made a new high in India at ₹34,000 per bale (170 kg) recently and corrected to ₹30,000 levels. “I think they are now headed closer to ₹34,000-35,000 levels or even beyond that. Eventually in the second half of 2022, prices will come down to below ₹30,000 somewhere around ₹28,000 and settle down. Farmers will have more incentive to produce more cotton going forward,” Gnanasekar said.
Recalling the all-time high price of $2 per pound witnessed during March 2011, Gnanasekar said such exaggerated moves had resulted in sharp retracement and that’s what the industry has to watch out for. “It is better to plan hedging strategies as prices rise because all the mills and buyers will be left with high priced inventories. Hedging strategies are going to be the key thing to manage well the cash flow and profitability,” he said.
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