Cotton Corporation could incur steep losses at current prices

This would be the biggest loss since at least 2008/09; of 35,000 bales auctioned till February 5, 17,000 bales sold

State-run Cotton Corporation of India (CCI) is set to suffer its steepest loss in at least six years from sales in the current season, highlighting the plight of an industry that is battling bulging stockpiles and waning demand from top buyer China.

The CCI started selling from its stockpiles last month to make room in its warehouses for the ongoing bumper harvest but managed to find buyers for less than half of what it auctioned.

It has procured about 6.5 million bales this season from farmers at prices five-sic per cent above current market rates, making the fibre uncompetitive amid world prices that are languishing near five-year lows.

"Based on the current price we may see a loss of Rs 20-25 billion ($322-$403 million) under the support price in operation this year as the response to the sale is very sluggish in the absence of Chinese demand," CCI Chairman and Managing Director B K Mishra said.

That would be the biggest loss since at least 2008/09, a government official said. However, this loss will not show up on CCI's books as it will be reimbursed by the government.

"I am hoping for some stability in prices by March on less supply," Mishra added, referring to the month when new season arrivals dwindle.

Of the 35,000 bales auctioned since January 27 until last Thursday, CCI has found buyers for only 17,000 bales. But despite the dismal response, the agency cannot afford to lower prices as it has already spent about $2 billion in buying cotton from distressed farmers, Mishra added.

A second government source said, including this week, CCI has auctioned 60,000 bales and sold around 29,000 bales.

India is expected to be the world's top cotton producer in the season to September 2015, with a likely output of 40 million bales.

China used to buy almost 60 per cent of India's cotton until last year but it has now cut imports to support its farmers.

This will bring down India's exports to six-eight million bales this crop year, from 11.8 million bales a year ago, Mishra said.

India's domestic cotton demand is expected to rise about three per cent to 31.1 million bales this crop year. However, Indian firms are delaying purchases on hopes prices will drop further.

"Mills do not have that much financial flows to buy on a long-term basis, on an average they are just keeping the stock for just one-two months," said D K Nair, secretary general, Confederation of Indian Textile Industry.

($1 = Rs 62.05)