Cotton prices may stabilise to below Rs 40,000 per candy, push mill uptake

Delayed harvesting this season led to exports projected to decline by 23% to 960,000 tons in 2016/17

Despite a below normal monsoon forecast likely to impact production, 2017-18 could turn out to be a better year for India's cotton heavy textile sector. Estimates peg cotton prices at below Rs 40,000 per candy of 356 kg mark or Rs 20,000 per bale of 170 kg in the coming weeks, turning out to be competitive for textile mills, thereby enhancing mill uptake.

As per the International Cotton Advisory Committee (ICAC), while delayed harvesting earlier this season has led to India's exports projected to decline by 23 per cent to 960,000 tons in 2016/17, India's mill use of cotton also declined by three to 5.1 million tons in 2016/17 due to high domestic and international cotton prices.

However, despite delayed harvesting previously and a below normal monsoon forecast this year, the Indian textile industry's cotton use is now projected to recover by 1 per cent to 5.2 million in 2017/18. In addition, cotton imports from key markets like China and Vietnam are also set to grow by 4-6 per cent, thereby increasing India's position in domestic and global cotton market.

"India's production is projected to grow by two per cent to 5.9 million tons while production in China could reach 4.8 million tons in 2017/18 as area expands by three per cent to 3 million hectares after five seasons of contraction. After declining by three per cent to 5.1 million tons in 2016/17 due to high domestic and international cotton prices, India's mill use is projected to recover by one per cent to 5.2 million tons in 2017/18. India's exports are projected to decline by 23 per cent to 960,000 tons in 2016/17, partially due to the delay in harvesting earlier this season," ICAC stated.

Similarly, according to an Angel Commodities' report, cotton prices have begun showing a downward trend, which could enhance mill uptake going forward. As per the report, recently, spot prices of cotton bale at Rajkot fell to Rs. 20,630 per bale of 170 kg, from Rs. 21,060.

However, expectation of higher cotton demand from China and forecast of El Nino during the later part of current month may still keep cotton prices higher.

"The Cotton Association of India (CAI) has maintained its estimate for production of cotton in the country in 2016-17 for October to September at 34.1 million bales where one bale is 170 kg, as it had projected in January.

In 2016/17, farmers continue to realise better price for their produce since the cotton prices have remained firm. The cotton arrivals are in full swing now and gap of arrivals as compared to last year has narrowed down considerably in the preceding period," Angel Commodities' report further stated.

Meanwhile, prices are expected to stabilise further in the coming months due to sufficient availability of cotton in the domestic market, despite a below normal monsoon forecast.

"The prices are expected to stabilize in coming months due to sufficient availability of cotton in the domestic market. Moreover, CCI has also been purchasing cotton at commercial rates during the current season and might have procured more than 100,000 bales bales which will be available for the textile mills later in the season. Cotton prices for rest of the season will be driven by the export demand from the country which is expected to be good due to China demand," the report observed.