Tight supply to keep cotton prices firm in FY19: report

India Ratings and Research (Ind-Ra) today said cotton prices are likely to stay firm during the next financial year following the tight demand-supply scenario, according to a report.

Lower fibre production in the current season (October-September) owing to crop infestation and acreage drop in the coming season (2018-2019) as well as adverse weather conditions in other key cotton growing nations could pose supply constraints, India Ratings and Research (Ind-Ra) said in a report.

However, the expectation of firming prices might encourage farmers to sow and arrest the acreage contraction. On the other hand, a robust domestic demand and rise in exports on account of the anticipated stock rebuilding by China are likely to keep the global consumption strong, the report said.

Minimum support prices (MSPs) for cotton are likely to be higher for the 2018-2019 season than for the previous season, it said.

However, given the tight demand-supply scenario, cotton prices might trade higher than MSP, limiting the government intervention, it added.

Despite the firm cotton prices, Ind-Ra expects margins across the cotton value chain to remain more or less stable.

This is primarily because a sustained demand from the end-user segments will allow manufacturers to pass on the price rise, it said.

Meanwhile, synthetic textile players are likely to witness a material margin contraction during FY19, due to their inability to pass on the price rise of crude oil-based raw materials, owing to the prevailing overcapacity domestically.

This might become worse because of rupee depreciation as raw material is procured at the import parity price.

Within the synthetic segment, it said, exporters and integrated players will be better placed to absorb a higher input cost, while standalone spinning units might be the most impacted.

Moreover, textile dyes and chemical prices are likely to remain high, exerting margin pressure, it added.