Cotton prices surge to record high on tight supply

Cotton prices continue to surge due to a mix of global and domestic factors, with no let-up in sight. Official sources say, arrivals are likely to slow, given the anticipation of getting even better returns.

The price for the benchmark Shankar-6 variety has touched a record of Rs 60,300 a candy (a candy is 356 kg) on the spot markets. It was Rs 42,000 a candy on January 1 and Rs 51,000 a candy on February 1.

The futures market price at the close today was Rs 1,205.1 per 20 kg, up 19 per cent from Monday. “The price may touch Rs 1,500 (per 20 kg) by the end of this week, as there are no sellers in the market, only buyers,” said Dharmesh Bhatia, associate vice-president of research at Kotak Commodity Services.

On the National Commodities & Derivatives Exchange, cotton futures have been hitting the four per cent upper circuit for four days in a row.

Arrivals this season have averaged between 100,000 and 125,000 bales (a bale is 170 kg) daily. About 30 per cent of the harvest — the government’s second estimate of production for the 2010-11 cotton year is now 33.9 million bales, an upward revision — is still left to reach the market, but arrivals are slowing, said Arun Dalal, an Ahmedabad-based trader.

A senior official in the Cotton Corporation of India, who did not want to be identified, said this was happening since traders expected prices to move further up and so were going to hold back.

Meanwhile, textile mill buying is confined to need-based purchases and many have refrained from fresh purchases. The global markets are facing a supply shortage as crops in Pakistan and Australia, both important producers, were destroyed by floods. The long-term outlook for prices remains bullish, as the supply shortage is expected to continue for some time. Cotlook, the benchmark index for international cotton prices, is up by nearly 20 per cent from January 1, when it was 171.95. It closed yesterday at 209.45.

So far, India had allowed 5.5 million bales of cotton to be exported in two phases and the market expects more to be allowed, fuelling prices even more.