Rush for exports slows down as Indian cotton rules firm

After having witnessed heavy rush for booking cotton for export purpose, cotton market has seen exporters slowing down their purchases due to higher prices of Indian cotton as compared to international prices.

This could be gauged from the fact that registration of cotton for exports in January is estimated to be 6-8 lakh bales only. "Out of the 48 lakh bales of cotton registered by exporters so far this season, 42-43 lakh bales were registered in the period from October to December, 2009," said Arun Dalal, owner of Arun Dalal & Co, an Ahmedabad-based leading cotton trading firm.

As per the traders’ estimates, 22 lakh bales have been shipped as on date. Industry players attribute higher cost of domestic cotton for sluggish activity in cotton export market. Indian cotton prices have not declined in tandem with global prices of the commodity.

Sample this: Cotton futures in US had touched a level 77-78 cents per pound before plummeting recently. The July contract at New York Cotton Exchange came down to 73.46 cents on Saturday, while March and May contracts were quoted one cent lesser than the July future. Domestically, prices of Shankar-6 variety dropped from Rs. 27,000 per candy to 26,500 per candy, which works out to be roughly 75 cents per pound.

"Internationally, cotton prices have dipped by 5 cents, while Indian cotton prices have come down by 3 cents. Given the price disparity, no exporter would like to book Indian cotton at this price level. As a result, the number of cotton registration has seen a decline," said Kishor Shah of Central Gujarat Cotton Dealers Association.

Strengthening of rupee against US dollar is yet another factor affecting the cotton export trade in India. However, traders feel that international price disparity has more to do with recent sluggishness in cotton export market of the country than depreciation of dollar vis-a-vis rupee.

India has seen arrival of around 1.55 crore bales, of which 90 lakh bales have been procured by domestic textile mills, 21.50 lakh bales have been shipped to overseas countries, 4.38 lakh bales purchased by Cotton Corporation of India (CCI) and rest 35 lakh bales are unsold at the moment.

It may be mentioned here that domestic textile mills have been on the buying spree in the wake of substantial rise in cotton yarn prices and good domestic demand for textile industry. Cotton consumption of domestic mills is estimated to rise to 255 to 260 lakh bales this cotton year (Oct-Sept) as against 240 lakh bales in previous season.

Interestingly, CCI, the nodal government agency for cotton procurement in the country, has purchased only 4.38 lakh bales this season which is hardly five per cent of last year’s procurement. It had procured a record 89.4 lakh bales in 2008-09 at Minimum Support Price (MSP). Farmers are already getting more than MSP, so they are selling cotton in the open market. CCI have about 50 percent stock from last year’s procurement,” PK Agrawal, GM, CCI, said while explaining the rationale behind lower procurement by the government agency this year.

Despite current drop in cotton prices, expert believe prices to remain firm this cotton year largely due to improved demand from China and tight fundamentals. The shrinking cotton output in major growing countries except India is likely to push cotton production down by 4.4 per cent 102.72 million bales in 2009-10. "We expect lower end-season stock this year, which will further fuel the prices of cotton," said a cotton expert.