Cotton prices to be impacted by higher production: Ind-Ra

The cotton crop in Maharashtra is estimated to be delayed as unseasonal rains damaged about 1.9 million bales, India Ratings and Research (Ind-Ra) said on Friday, adding that the damaged crop is estimated to fetch prices that will be 30 to 35 per cent lower than the minimum support price (MSP) due to high moisture content.

Overall, cotton prices witnessed a moderate reduction in September with the Cotton Corporation of India (CCI) buying at the MSP in Punjab, Haryana, Gujarat and Rajasthan. CCI purchased nearly 1.2 million bales (about 1 per cent) of the total arrival in the ongoing cotton season (October 2019 to September 2020).

The CCI has estimated cotton production to increase by 13.6 per cent to 35.5 million bales (170kg) for the season on the back of greater-than-average rainfall in the country and increased sowing by farmers. The area under cotton cultivation increased by 6 per cent year-on-year during the current season.

India's raw cotton exports fell by 75 per cent during the first half of the current financial year due to high domestic prices and the availability of cheaper cotton from Brazil, the United States and Vietnam.

The spinning industry saw disruptions in production in Q2 FY20 because of reduced demand and volatility in cotton prices, said Ind-Ra in its credit news digest.

While demand from China improved marginally in August and September, further improvement will be healthier for the spinning industry which has been facing margin pressure and low capacity utilisations.

Manmade fibres saw the second consecutive month of stabilisation on the back of stable crude prices. However, the short-term instability in prices in September following the attack on the refinery of Aramco in Saudi Arabia led to temporary pressure on the margins of synthetic fibres.

With the recovery of the attacked oil sites, crude prices returned to stable levels with a corresponding impact on manmade fibre prices.

Fabric exports improved in H1 FY20 due to an improvement in the quality of Indian fabrics and addition of newer markets. Exports totalled Rs 12,489 crore (H1 FY19: Rs 11,611 crore) with the main markets being Bangladesh (19 per cent), Afghanistan (7.4 per cent) and Sri Lanka (6.2 per cent).

A sharp rise in imports of cheap apparel from Bangladesh has rendered the Indian textile value chain uncompetitive, said Ind-Ra. Readymade garments recorded a de-growth of 14 per cent month-on-month in September due to a steep fall in demand from the United States and Britain.