Move may help industry bridge demand-supply gap

A sharp dip in cotton prices, from Rs 62,000 per candy (356 kg) in January to Rs 29,500 per candy in the last week of July, has prompted the Centre to bring exports under open general licence (OGL).

The commerce ministry’s decision to put cotton exports under OGL till September 30, may help the industry plug the demand-supply gap and attain a realistic price range in the domestic market.

Though the spinning industry in India may not benefit, ginners, traders and exporters expect to offload the stocks they had been saddled for the past few months. Exporters are eyeing traditional buyers like China, Bangladesh, Turkey, Pakistan and Thailand to dispose their stocks.

Cotton from Pakistan is available at about Rs 30,540 per candy, while the Indian variety is currently priced at Rs 31,000 per candy.

“The margins are wafer-thin and it would all depend on negotiations,” said Vinod Ahuja of VRA Cotton Mills, New Delhi. He said it would help revive confidence among buyers because under the licencing regime, there were many problems and the buyers were not sure getting supplies in time, even after issuing the letter of credit.

The logistics cost for cotton exports varies between Rs 1,500 per candy to Rs 1,800 per candy, depending on the export destination.

The latest estimates by the Cotton Advisory Board (CAB) said India has a carryover stock of 5.25 million bales (170 kg), against the anticipated stock of 2.75 million bales. Industry estimates are close to 8 million bales (3.6 million with mills, 1.6 million with farmers, 2.4 million with ginners and 0.4 millions with shippers).

The president of All Gujarat Ginners Association, Dilip Bhai Patel, said the industry would have gained if the decision had been taken three to four months earlier. Now, it would only help clear the stock, as prices are not remunerative in the international market. The price of Shanker-6 cotton was ruling around Rs 32,000 on Monday and Patel expected a marginal revision in the price in the near future.

“Pakistan is ahead of us in cotton harvest and they are expecting an increment of three million bales this year. Their ginning mills are already operational. So, we may lose the edge in the international market this year,” he added.

The secretary general of Confederation of Cotton Textile Industry (Citi) D K Nair said there was a silver lining for cotton ginners and farmers as lesser stock may help them get better prices for the upcoming crop, but industry per se would not get any push from this.

According to sources, Cotton Corporation of India is holding about 0.4 million bales, but refrained from exports as it did not get any viable proposition. Traders and exporters are expected to export about one-third of their stocks in the international market under the current market scenario.