Cotton price rally, traders blame MNCs

Cargill, Glencore say they didn't manipulate market

Cotton prices are up 7.5 per cent in January on lower arrivals despite estimates of a bumper output this year.

The benchmark, Shankar 6 variety, was traded at Rs 11,979 a quintal on January 24, a rise of Rs 850 from early this month. Other varieties of fibre have moved up similarly.

The agriculture ministry in its first advance estimates projected India’s cotton output at 32.12 million bales (170 kg each) in 2016-17, up from 30.15 million bales in 2015-16.

Ginners are facing a squeeze in their margins because they cannot pass on the increase in cost to consumers. Multinational companies active in purchase of cotton have dented the business of local cotton traders and ginners by holding on to stocks.

“Multinational companies enjoy the advantage of having a presence in many countries where they hedge risk in the cotton trade. Domestic commodity exchanges have not done enough to educate traders. Despite having a hedging facility, traders do not participate in the contract,” said Arun Dalal, an Ahmedabad-based cotton 

trader.

Rising cotton prices have driven India out of the global trade. Exporters, however, continue to meet old commitments.

“Cargill does not indulge in market manipulation. Demonetisation has hampered the supply of agricultural commodities and cotton is no exception,” said a Cargill India spokesperson.

“Estimates show arrival of raw cotton is behind its usual pace at this time of the season. This shortfall follows an already tight Indian supply towards the end of the previous season,” the spokesperson added.

“Our activity is focused on providing trading solutions to our customers and suppliers. This activity is conducted in accordance with the law,” Glencore said in an email response to a Business Standard query.

Emails to Singapore-based Olam International and the Netherlands-headquartered Louis Dreyfus Company did not draw any response.

A study by Care Ratings shows domestic cotton prices fell by about 16 per cent during July-November on weak demand from spinners. However, prices picked up marginally during October-December with new cotton arrivals.

“In November-December, daily cotton arrivals were lower by around 10 per cent, year on year, due to demonetisation. In the cotton season 2016-17 (October-September), with an increase in production and stable consumption, cotton exports are expected to pick up,” said Darshini Kansara, research analyst with Care Ratings.