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Thursday, Feb 27, 2003

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Traders stockpile cotton expecting price rise

G. Gurumurthy


WITH domestic cotton crop this year expected to fall below 130 lakh bales, traders have piled up stocks in anticipation that raw cotton prices would surge further between now and April when the demand for quality cotton would be felt acutely.

Trade sources said as against the usual stocking of about one-month's requirement, cotton traders this time around have been invariably holding stocks of two-months' saleables on the speculation of seeing higher prices for the natural fibre.

The key reasons for the trade doubling their cotton holding are that the arrivals of new crop from all principal production centres and farm fronts in major cotton tracts in the country have started declining.

Unlike in the previous years, any significant holdings of kapas at the farmers stage are discounted as most farmers, considering the higher farm-gate prices their kapas fetched this time, are believed to have disposed of their produce.

Trade sources told Business Line that though the trade had estimated the size of the current crop at 138.5 lakh bales, the actual size of the crop for the year might fall as low as 125 to 127 lakh bales in the final analysis. However, the trade holding excessive stocks depending upon their financial muscle might seek to encash them before long. This probably would set off some amount of price fluctuation between March and April when the trade would like to liquidate their cotton stocks.

With the cotton prices spurting in the past one month in the back-drop of a lower crop, a major chunk of the textile units would be forced to opt for short-covering of cotton. It is expected that hardly 25 per cent of the textile mills with comfortable cash position would have adequately covered their requirement, say for meeting six months of consumption. The sentiment of a lower crop had especially pushed up the cotton prices by 15 per cent in the past one month, the sources said.

The lower domestic crop this year is expected to give momentum to the consuming textile mills stepping up pressure on the Government to bring down the import duty on raw cotton by next month. At present the international price of cotton rule higher at least by 10 per cent compared to the indigenous cotton price and added to the 10 per cent customs duty, the imported cotton would definitely look unattractive for the moment for the end-users.

A cut in import duty on raw cotton, therefore, assumes one of the wishlists for the domestic textile industry from the ensuing Union Budget.

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