Cotton price up on sudden spurt in export demand

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

Cotton prices have firmed up in the last two weeks on sudden spurt in export demand from overseas markets.

While prices of the benchmark Shankar 6 variety jumped three per cent to Rs 9,617 a quintal from Rs 9,336 a quintal around two weeks ago, cotton futures for the near-month delivery on the 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 rebounded to hit the highest of Rs 9,983 a quintal on May 6.

As against the current price of 69 cents per lb on the InterContinental Exchange, fob (free on board) price of Shankar 6 works out to 69.30–70.10 cents per lb. Considering other expenses, India’s cotton stands competitive in Bangladesh.

"This is the first time in last four years that the export parity has come close to being favourable in the month of June-July. Usually at this time of the year India has favourable import parity and the prices in India are much higher compared to the global prices. Last week Indian FOB rates are only couple of cents above the near month ICE futures, and hence it could make exports favourable to the neighbouring countries like Bangladesh. This was reflected in the auction by the latest Cotton Corporation of India as of the 350,000 bales (1 bale = 170 kg) quantity of auction, around 19,000 were meant for exports," said Prerana Desai, vice president-research - Agri Value Chain, Edelweiss Integrated Commodity Management Ltd.

China’s tepid purchase, coupled with huge quantity of carryover stock, might keep cotton price under pressure. India remains surplus with cotton, with around 4.5 million bales of carryover stock from the last year, 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 at exporting cotton.

Domestic textile producers, however, are operating on stock-to-consumption basis in which buyers prefer to buy cotton according to 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, Cotton Textiles Export Promotion Council  (Texprocil). Washington-based International Cotton Advisory Committee forecasts global cotton price to average at 71 cents per lb in 2014-15 and move in a narrow range of 70-73 cents per lb. In 2015-16, international cotton prices might remain stable.

As against 23.9 million tonnes of production (nine per cent lower from last year), International Cotton Advisory Committee global consumption to 24.9 million tonnes (up two per cent). S K Das of CCI, said selling of cotton is fully dependent on demand and supply.

Under the “Make in India” initiative, the government is planning to establish a modern apparel/garment manufacturing centre in each northeast state as announced by S K Panda, textile secretary at the National Garment Fair, organised 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.