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M.R. Subramani

Rupee gain, competition from US add to woes

Chennai May 8 Cotton exports from the country have ground to a halt with no contracts being entered into in the last one-and-a-half months. Enquiries with exporters reveal that they have not booked any orders as domestic prices are ruling higher and the rupee has gained substantially against the dollar.

"Exports are almost nil. Whatever exports are taking place are from the contracts entered into earlier," said trading sources.

Supporting the downtrend in exports is the latest US Department of Agriculture's pruning of Indian cotton shipment projections. In its latest estimate, the agency has estimated exports of 57 lakh bales (of 170 kg) or 9,80,000 tonnes for the current season ending July. This is lower from last month's projection of 60.17 lakh bales (10,23,000 tonnes). Last season, exports totalled 44.17 lakh bales (7,15,000 tonnes).

Domestic prices

"A major reason for exports to come down to a trickle is that prices elsewhere in the global market are lower than our prices. On the other hand, our domestic prices have gained," the sources said.

Domestic prices have gained as farmers and traders are reported to be holding on to stocks expecting an increase in the rates despite projections of a record 270 lakh bales crop. This is against last year's crop of 255 lakh bales.

For example, prices of Shankar-6 variety, at one point of time last month, increased to Rs 20,000 a candy (of 356.65 kg) from Rs 17,900 at the beginning of the year. Currently, the prices have dipped to Rs 19,000. Similarly, prices for J-34 increased to Rs 19,065 from Rs 16,909 before dipping to Rs 17,861. H-4 grade's rise has been from Rs 17,300 to Rs 19,200 before ruling at Rs 18,600 now.

Major buyer

"In contrast, prices of cotton from West Africa are very cheap. Even prices of US cotton are at least 10 per cent cheap," the sources said. US cotton prices are currently quoted around Rs 13,000 a candy f.o.b.

Exports this season have been to countries such as China, Taiwan, Bangladesh and Pakistan. In fact, during the last couple of years, China has turned a major buyer of Indian cotton. "The US conceded lot of ground to Indian cotton last year but this year, it is making things difficult for us," the sources said.

However, the US Department of Agriculture has pruned its forecast of China's imports to 29,38,000 tonnes (172.82 lakh bales) from 30,48,000 tonnes (179.29 lakh bales). This is lower than last season's import of 41,99,000 tonnes (247 lakh bales).

"The depreciation of the dollar especially against the Indian rupee has also played a role in the slowdown in exports," the sources said. From around 44 to the dollar, the rupee has declined to 40.86 on Tuesday.

"The rupee will have to depreciate to at least 44 or 45 to the dollar for exports to really pick up," they said. On the other hand, prices of cotton in the domestic market also will have to come down, the source added.

Though cotton prices tend to gain during this time of the year due to lean arrivals, the trade is of the view that the increase in prices lacks fundamental support.

"We have had a record crop and good stocks are available. Also, imports are taking place," they said.

Nearly five lakh bales have been contracted for imports.

Meanwhile, a Reuters report quoting Mr Kishorilal Jhunjhunwala, President, East India Cotton Association, said exports have resumed in a small way with decline in prices.

More Stories on : Cotton | Exports & Imports | Forex

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