Cotton Price Rise

Cotton Price Rise & Fall- A lesson for the Industry !

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Woven Cotton Fabric

Recently the cotton Prices across the world has witnessed tremendous amount of industry shakeups. These shakeups have caused inconsistent potholes into the functioning of vertically interlinked industry of Spinning, Weaving & Garmenting. A series of cynical price rise with “catch me if you can” adverb- cotton prices have hit every corners of pain in the industry. We will talk about the trends of Price Rise and try to explain its possible future normalization of price level.

Below is the chart which tries to capture the price normalization of cotton in the range of ₹17,770 per bale (170 kgs) to ₹ 24,160 per bale for the long period of 5 years. A mere spike to the level of 25,000 was a sin to put rest upon. With Price almost exponentially doubling with no time to all the level of ₹ 50,000 per bale in late 2020. Traders of any instrument must be able to capture the name of price theory to make a more concerned decision. However the fallacy is that- the more they get concerned about price behavior, the greater be the aggravation & intensity of price behaviors- Both Rise & Fall. Ultimately, the market forces must be able to ping down the prices of normal averages. Convergence of Cotton price to so called normal level is akin to any trad-able commodity in the world.

Cotton & Demand

If we look on the demand of cotton, it fails onto justify that its price rise cannot be stopped- Yes It Can !

Some of the points which argues this theory of price limitations

  • Seasonal Usage
  • Limited Functionality of Cotton Yarn vis-a-vis Polyester
  • Limited Longevity, Shelf Life

Above points may not be exhaustive, but are enough to argue that – whatever is the temporal heat in the rise of cotton prices, there would be price convergence & normalization.

Future Price Estimation of Cotton

The prices of cotton is yet to travel the long distance to ₹ 26,420 – which is the 200 EMA (as shown in below chart). The travel to that level would be much more liquidity exhausting- simple reason is the standing bets would only take its hand off the table if the price breaks below the level of ₹ 40,000 per bale. As soon as a trigger of Winter Season sets in motion this might not be as difficult to achieve.