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M.R. Subramani

Chennai , Oct. 10

FALL in cotton prices may be limited in view of strong demand from domestic mills and exporters besides increase in its global prices.

Forward prices have begun to decline in anticipation of a higher crop but spot prices are still ruling firm, according to sources connected with purchases for spinning mills.

"Prices are a little lower than they were a couple of months ago. However, they are still higher than the same period last year," the sources said.

For example, data made available by the Cotton Corporation of India (CCI) shows that prices for J-34 are ruling around Rs 19,600 a candy (of 355.56 kg) against Rs 14,400 during the same period last year. Similarly, prices of H-4 are quoting at Rs 22,300 a candy against Rs 16,700 last year and S-6 (Shankar-6) at Rs 22,500 (Rs 17,000). The exceptions are Bengal desi and DCH-32 cotton. Also, prices for the week ended October 7 were Rs 500 a candy lower than the previous week mainly in view of rising arrivals.

"Currently, arrivals are around 15,000 bales (of 170 kg). It will touch 25,000 bales in a week's time," the sources said.

According to CCI, 72,000 bales have arrived in the markets in Punjab, Haryana, Rajasthan and Gujarat. Small arrivals have been reported in Maharashtra and Madhya Pradesh.

Cotton production is seen bouncing back to 160-165 lakh bales this season (October 2003-September 2004) against 136 lakh bales last season.

The Indian Cotton Mills Federation (ICMF) Secretary-General, Mr D.K. Nair, told Business Line that though the crop was expected to be good at 160-170 lakh bales, domestic prices would depend on the international trend.

"International prices are firm and export prospects look good," he said.

As on Thursday, global prices indicators Cotlook A and B index were up at 67.40 and 64.90 cents per pound respectively. The indicators are up over 45 per cent. In New York, the futures are ranging between 68.65 cents for October and 71.91 cents for March— all double than what it was during the same period last year.

International prices are spurting on rising demand and falling stocks. While global production is projected to rise to 20.21 million tonnes (mt), consumption is also seen higher at 21.20 mt resulting in fall of carryover stocks to 7.80 mt from 8.79 mt last year.

Mill sources said a team of exporters, which had gone abroad to explore the global market, had returned with hopes of clinching a few deals. "Importers in South-East Asia are willing to buy Indian cotton if the prices are reasonable. If everything goes well, we may even export five lakh bales," they said.

Already, exporters have got firm orders to ship over 10,000 bales. Demand is seen for medium-staple varieties such as J-34 and S-6 from countries such as Indonesia and the Philippines.

"Prices will begin to decline from mid-November in the domestic market. But the decline could be limited in view of the developments in the global and export market," the sources said.

Mr Nair said domestic demand was also seen rising this year. Indigenous demand slid to 169 lakh bales during 2002-03 from 172.26 lakh bales the previous season. With economic revival taking place, it could be higher this season.

The firm global prices could also see a slide in cotton imports. Mr Nair said: "Imports could decline sharply in view of the good crop."

The sources said imports could take place only if the prices were competitive.

"Crop in Australia and the US is poor, while prices of West Africa cotton are high. Still, import of long staple cotton will take place as there is shortage of that variety here," the sources said.

During 2002-03 season, imports declined to 16 lakh bales from a record high of 25.6 lakh bales the previous year. This year, thanks to good crop prospects, it could be still lower.

A lower carryover stock of 24 lakh bales against 40 lakh bales last season could also have a bearing on the prices, the sources added.

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