Stock burden, unstable demand may result in cotton price downtrend

Season's total supply declined by 12% so far this year

Burden of an unsold stock coupled with unstable demand may translate in price downtrend for cotton for most of the year, say industry sources. While unsold amount of cotton is high on one hand, there have been lower expectation of any big jump in demand for the commodity.

Currently cotton price is ruling at Rs 34,200-34,500 per candy of 355 kg and may fall to Rs 33,000 in next month or two. Moreover, according to traders, even if demand rises, the stock is enough to meet the same.

As per the recent estimates by the Cotton Association of India (CAI), as against production estimates of 34.10 million bales (a bale of 170 kg) in the cotton year 2015-16, the arrivals till March 31, 2016 have been at around 28 million bales, down by 12 per cent from last year's arrivals of 31.84 million for the said period. Last year, the cotton production stood at 37.5 million bales.

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"With previous year's carry forward, import and this year production, total supply is estimated about 42.50 million bales for the entire year. As on date India has over 5.5 million bales of unsold stock which is more than enough to fulfill the demand. On the other side this year so far overall demand has not come in force as export during the year has seen quite slow," said Shirish Shah, leading trader of cotton from Mumbai.

Till June 2016, India requires 2.5 million bales of cotton to fulfill domestic as well as export demand. But as this year prices of cotton have mostly traded at the downside, domestic mills have not bought in bulk on expectation of further fall in price. Moreover, after December 2015, demand for export has also declined.

"So far mills have been getting cotton at affordable rate, resulting in light buying. During the entire season this year, mills have bought as per their requirements and in coming months this trend may continue." Shah said further.

According to trade estimates, India has exported about 5.5 million bales so far and nearly one million more export is expected by end of the season.

On the other hand, some in the industry believe that there is about 4.5 million bales of stock with India which is not sufficient to fulfill the demand in coming days and this may push prices on upside.

Add to that, quality is also an issue as cotton crop have been damaged badly in Punjab, Haryana, Gujarat, Maharashtra and other south Indian states. Low availability good quality product may push up the price, some say.

"This reduction in arrivals during the ongoing cotton season is a clear indication of a lower crop this year," said Dhiren Sheth, president of CAI.

According to Arvind Popat, managing director of Jalaram Cotton and Proteins Limited, the current unsold stock would not be enough to fulfill demand in coming months, due to which cotton prices may go up. "However, price trend will depend on demand," Popat added.

Currently, cotton price is ruling at Rs 33,700-34,500 per candy of 355 kg and best quality cotton is traded at Rs 35,000 per candy across India. In April, the price gradually increased by Rs 700-800 on short supply of quality product and rise in international market also pushed domestic price.