The Hindu Business Line : ‘Low carry-over stock pushes up cotton prices’

Coimbatore, June 9 Low carry-over stock of 43 lakh bales (170 kg each) is behind the sky-rocketing of raw cotton prices this year, says the textile industry.

According to Mr B.K. Patodia, Vice-Chairman and Managing Director of GTN Textiles Ltd, the ending stock at 43 lakh bales amounted to 18 per cent of the stock-in-use ratio and this low carry-over has led to soaring of domestic cotton prices, whereas the global average stock-in-use for 2007-08 is 44 per cent. Some of India’s competitors such as China, Pakistan and Turkey have higher stock-to-use cotton ratio of 34 per cent, 35 per cent and 31 per cent respectively. Allowing export disproportionate to its domestic consumption has created imbalance in demand and supply, Mr Patodia felt.

He held that cotton export should be below 20 per cent of the crop. He also felt the need for levying 5 per cent duty on cotton export as exporting Indian cotton at low prices would amount to subsidising foreign buyers. Alternatively, he wanted the duty on cotton imports be removed or brought down to 5 per cent.

One of the traditional tools of cotton textile industry in arriving at the comfort zone of raw material buffer at the end of the cotton budget (Oct-Sept) year is estimating the stock-to-use ratio of cotton (namely, the stock left as a percentage to the total consumption demand) available by end-September (when the cotton year closes).

The thumb rule from industry stalwarts stipulates a carryover stock equivalent to an average three months’ cotton consumption by the industry or 25 per cent of stock-to-use ratio that will allow the industry to retain consistency in production. As per the current consumption figures, the average monthly consumption of cotton by the textile industry is put at 22 lakh bales and hence the total desirable level of carryover stock will be 66 lakh bales. The balance sheet for 2007-08 worked out at the Cotton Advisory Board (CAB) meet last month has spelt the closing stock for the season at 43 lakh bales, one of the lowest ever carry-over stocks in recent times, according to the industry.

According to the CAB worksheet for 2007-08 cotton season, of the total estimated cotton supply of 369 lakh bales (comprising a final estimated production of 315 lakh bales along with an opening stock of 47.50 lakh bales and imports of another 6.50 lakh bales), the total demand for mill consumption and non-mill consumption is put at 241 lakh bales (comprising organised mill consumption of 203 lakh bales, SSI mill consumption of 23 lakh bales and non mill consumption of 15 lakh bales). Besides, the balance sheet has also worked out the total cotton exports for the yearat an all-time high of 85 lakh bales which, according to the industry, represents 27 per cent of the total crop and is responsible for eroding the closing stock.