Cotton price up on sudden spurt in export demand

Unlikely to sustain on huge global surplus, slow demand from China -

July 03, 2015 In a sharp turnaround, cotton prices firmed up in the last two weeks on sudden spurt in export demand from overseas market due to parity favourable to Indian exporters.

While prices of the benchmark Shankar 6 variety jumped by 3 per cent to Rs 9617 a quintal now from Rs 9336 a quintal around two weeks ago, cotton futures for near month delivery on Multi Commodity Exchange recorded a gain of 1.3 per cent to Rs 9,665 a quintal. After hitting the lowest level of this season at Rs 8,380 a quintal on January 27, Shankar 6 variety of cotton rebounded to hit the highest of Rs 9983 a quintal on May 6.

As against the current prevailing price of 69 cents/lb on the Inter Continental Exchange, fob (free on board) price of Shankar 6 works out to 69.30 - 70.10 cents/lb. Considering other expenses, India's cotton stands competitive in Bangladesh.

"For the first time in four years at least, the parity has become favourable for Indian cotton exporters due to steep fall in its prices in India and surge globally. This was reflected in the latest auction by the Cotton Corporation of India (CCI) as of the 350,000 bales (1 bale = 170 kgs) quantity of auction, around 90,000 were meant for exports. Future prices movement, however, is unlikely to sustain due to hug quantity of global stock," said Prerana Desai, an analyst with Edelweiss Integrated Commodity Management Ltd.

China's slow purchase coupled with huge quantity of carry over stock may keep cotton price under pressure going forward. India remains surplus with cotton with around 4.5 million bales of carry over stock from the last year, over and above 39.8 million bales of estimated output as per the Cotton Advisory Board, offloading in Indian markets is impossible. That is why, CCI is looking to offload maximum quantity of cotton in the international market.

Domestic textile producers, however, are operating on stock-to-consumption basis in which buyers prefer to buy cotton as per need to avoid unnecessary blockage of working capital in building of inventory.

"Domestic textile mills are facing working capital squeeze. Hence, they buy cotton as per need. Price movement of cotton is controlled by CCI," said R K Dalmia, President, Century Textiles Ltd and chairman, The Cotton Textiles Export Promotion Council (Texprocil).

Washington-based International Cotton Advisory Committee (ICAC) forecasts global cotton price to average at 71 cents / lb in 2014-15 and move in a narrow range of 70 - 73 cents / lb. In 2015-16, international cotton prices may remain stable. As against 23.9 million tonnes of production (9 per cent lower from last year), ICAI global consumption to 24.9 million tonnes (up 2 per cent).

S K Das, General Manager (sell) of CCI, said that selling of cotton is fully dependent upon demand and supply.

Meanwhile, under the "Make in India" initiative, the government is planning to establish one modern apparel / garment manufacturing centre in every north east state as announced by S K Panda, Textile Secretary at 61st National Garment Fair, organized by The Clothing Manufacturers Association of India (CMAI) here last week. Focus on domestic manufacturing is set to raise local demand of cotton as well.

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