As the fall in cotton prices in the international markets has been much sharper than in India, spinners in south India are now looking to import cotton. Moreover, spinners have the choice of making payments within six months without paying any interest, after which they will have to pay a nominal interest of below three per cent per annum.
From 85.7 cents per pound in the beginning of May, international prices of cotton have slid 20 per cent to 70.52 cents per pound now. But the rupee has fallen during the period, making imports costlier. Consequently, the fall works out to 5.06 per cent.
The price of cotton in the Indian market, however, has remained stable. It traded at around Rs 9,200 per quintal on Friday.
The price of imported cotton, similar to Shankar 6, is 75 cents per point while Indian cotton is being exported at 80 cents per pound.
South India-based spinners are currently importing from Africa, as it is cheaper.
So far, mills in the south have imported 70,500 bales (one bale = 170 kg) of cotton, according to indenting agents. The import cost is Rs 34,000 per candy. This, while Gujarat cotton is available in Coimbatore at Rs 37,000 and Andhra Pradesh's version at Rs 38,000.
“We are getting orders from spinners from the south to import cotton. They fear the delay in monsoon will cause cotton acreage to shrink, which will eventually cause prices to go up in the coming cotton year," said Umang Kapasi, joint managing director of Comibatore-based Shri Vardhaman Cotton Corporation, which also operates as an indenting agent. He said the only issue is it takes 40 days for imports to arrive.
Since May, export orders for cotton have remained almost stagnant. During October-May, 11 million bales were exported. However, since then, only one million bales were exported.
Since the fall in international prices has been much sharper than in India, exports have almost stagnated. Demand usually arises from China, but that country has already created a buffer stock by heavily importing from the US, the largest producer of cotton in the world.
Even Bangladesh, which procures cotton from India, has not been importing in the last few weeks. "There is very little demand from Bangladesh and China for cotton," said M B Lal, a Mumbai-based cotton exporter.
Even after India threw open its exports after the ban, exports in the month of May stood at only one million bales.
Domestic demand has also taken a hit as many mills have resorted to need-based buying. Traders are not selling to mills on credit, as they are not sure if the latter will be in a position to pay back later, due to overall weakness in demand.