Cotton prices fall 37% on high acreage, inventories

The consistent and sharp decline in cotton prices since April has put the supply chain under tremendous pressure. Cotton prices, in the range of Rs 61,000 per candy (356 kg), fell to Rs 38,000 per candy on Monday.

According to K N Vishwanathan, secretary of the South India Cotton Association, the price of Shankar 6 (the cotton produced in Gujarat) was about Rs 38,000 per candy.

According to Bhagwan Bansal, president, Punjab Cotton Factories and Ginners Association, the price of J-34 (cotton produced in Punjab) remained Rs 36,690 per candy and J-33 (cotton produced in Haryana) was sold at Rs 34,784 per candy.

With a 15-20 per cent increase in cotton acreage across India and a heldover stock of about six million tonnes with traders, ginners, exporters and the cotton industry are having sleepless nights.

A miniscule quota of 1 million tonnes for exports with stringent penalty norms failed to lift the spirits of the industry. A huge inventory that is likely to swell with the arrival of new crop in September-October is also cause of worry for the industry.

Most spinning mills are operating at less than 50 per cent capacity.

Shiv Prasad Mittal of the Ludhiana-based Arti Group that has 175,000 spindles said they had to cut their capacity utilisation to half.

“We export 65 per cent of out total output to countries like China, Hongkong, Mauritius, Korea and Bangladesh. Prices have dropped from Rs 280 per 30s comb to Rs 180 per 30s comb excluding the freight charges from Ludhiana to Mumbai. The price in the domestic market is about Rs 190 for per 30s comb,” he said.

Vinod Ahuja of VRA Cotton Mills said the present situation may have serious repercussions, as farmers have sown larger areas in anticipation of higher prices but the unprecedented price reversal may put them in debt.

He said the export should have been put under the open general license. An exporter cannot take an LC before knowing how much quota he has been allotted.

Until the inventory is cleared, the price improvement cannot be expected. “We are in a Catch-22 situation, as it is not viable for us to sell the stock at a price 35 per cent lower than our purchase price,” said Bhagwan Bansal, a trader.