Cotton prices reach peak levels on low demand

Cotton prices across the country have seen an unabated rally in the last one and a half months due to international and domestic buying as well as tight supply in the global market. The prices of various benchmark varieties have touched peak levels of the season.

The spot price of Sankar-6 cotton, a benchmark variety of Gujarat, reached a peak of Rs 27,000 per candy. The price of the same was ruling at Rs 23,000 per candy one-and-half month back. Similarly, prices of Punjab’s J-34 variety surged to Rs 25,700-26,000 per candy, which were at Rs 24,500 per candy last week. The prices of MECH4 or H4, a benchmark variety grown in Maharashtra, increased to Rs 26,000 per candy and Banni Brahma of Andhra Pradesh was quoted at Rs 26,300-26,500 per candy.

“Cotton prices are on upswing not only in India but across the globe as the supply is lesser than the demand. Also, the economy is doing well,” said JN Singh, joint secretary, textile ministry, government of India.

Agreeing to Singh, Nayan Mirani, vice-president, Cotton Association of India (CAI) said: “The price rise is a result of both domestic and international buying as there is a tight supply position globally. Domestic mills have kick-started buying cotton following improvement in yarn market.”

US, Brazil and Pakistan have no surplus cotton, while China’s cotton acreage dipped 10 per cent this year. “This has made India the only destination for cotton procurement, where production is estimated to be 290 lakh bales in 2009-10,” said Kishor Shah of Central Gujarat Cotton Dealers Association.

It may be mentioned here that Indian cotton is still cheaper in global export market. Chinese buying, too, is a crucial factor for bullish trend in prices. China had reduced cotton import quota last season and the reserved stock released by the government of China could not improve the domestic demand substantially.

“There is supply shortage in China as it depends heavily on imports. Its production is likely to fall due to a drop in cotton acreage this year. China accounted for around 25 per cent of the total export deals during the past couple of weeks,” added Shah.

So far, 60 to 62 lakh bales have arrived in the market, of which 18 to 19 lakh bales have been registered for exports. “Mills from south India have purchased 6 lakh bales, while 12 to 14 lakh have been bought by mills in north India. Cotton Corporation of India (CCI) has procured 1.75 lakh bales during the season,” said Arun Dalal, owner of Arun Dalal & Co, an Ahmedabad-based leading cotton trading firm.

There are some who believe that the surge in prices is also driven by speculative trading. However, market players see the prices easing as arrivals may increase in the days to come.