Once bitten, twice shy: Cotton purchases begin

Taking cues from last season’s exorbitant cotton prices, domestic textile companies are not taking any chances in procurement of the commodity. They are opting to procure cotton during the main arrival season to avoid the higher prices later.

The cotton advisory board (CAB) had estimated that a maximum 8.5 million bales of cotton would be exported in 2007-08. However, the actual exports surpassed 10 million bales, driving up the prices to historical highs.
 

TREND IN PRICES
In Rs/candy	J-34		Shankar-6
	2006-07	2007-08	2006-07	2007-08
October	16,000	17,800	18,400	20,000
November	15,400	18,400	17,900	19,600
December	NA	18,800	NA	20,100
January	15,400	19,400	18,000	21,000
February	NA	20,200	NA	22,100
March	NA	20,200	NA	22,100
April	17,900	20,600	18,600	22,600
May	18,600	24,400	19,300	24,500
June	18,700	26,600	19,300	27,300
July	19,500	27,400	20,400	28,300
Note: 1 Candy = 356 kg)                  Source : Cotton Corporation of India

The Cotton Corporation of India statistics reveal that the prices of Shankar-6 variety of cotton were Rs 19,300 a candy (1 candy = 356 kg) at the beginning of the cotton year in October 2007, but shot up by 46.64 per cent to Rs 28,300 in July 2008.

Sunil Khandelwal, chief financial officer, Alok Industries, said, “It’s better not to take any chances and procure cotton in the season when prices are reasonable. Given the developments last season, it makes sense to book our cotton requirements between October and December.”

Century Textiles and Industries’ president, R K Dalmia, said, “The recent rains in the central region will ensure good crops in the next season. But as there will be exports again, we will continue procuring cotton in the main arrival season. The lesson learnt last year should not be repeated.” Only mills which can afford cotton at higher prices can procure in the off-season, he added.

According to CAB, the domestic mills are expected to consume 226 lakh bales of cotton in 2007-08, which is around 5 per cent higher than last year’s consumption of 216 lakh bales.

K K Baheti, chief executive officer and president of Birla Cotsyn, part of the Yash Birla group, said, “Since the government has taken steps to keep a check on exports of cotton, availability will not be an issue. However, we will prefer to cover ourselves up by December for the following six months.”

The country produced 315 lakh bales (1 bale = 170 kg) in 2007-08. But the textile companies, which anticipated good supply of cotton, preferred not to cover themselves during October-December (main arriving season when cotton prices soften). However, the prices of cotton spiralled in January due to the high demand from China and 20 per cent dip in the US’ cotton acreage.