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Cotton flares up on mill demand, global cues

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Prices touch Rs 50,000 a candy.

M.R. Subramani

Gayathri G.

Chennai, Jan. 27

Cotton prices touched Rs 50,000 for a candy (356 kg) on Thursday on higher demand from mills in the South and a flare-up in global prices.

In Rajkot, Shankar-6 cotton was quoted at Rs 50,000 a candy, while in Maharashtra the variety was quoted at Rs 49,400. Brahman Bunny was quoted at Rs 50,800 in Mumbai, while MCU-5 ruled at Rs 52,500.

Raw cotton prices in Gujarat's Rajkot quoted above Rs 1,100 for a maund of 20 kg, while in Dhoraji Agricultural Produce Marketing Committee yard, 100 km from Rajkot, it ruled at Rs 1,100-1,600. In Rajkot, arrivals were higher at 1,190 tonnes against 940 tonnes on Wednesday.

In Andhra Pradesh, raw cotton in Khamman was quoted at Rs 5,100 a quintal against Rs 5,000 on Wednesday despite higher arrivals of 3,541 tonnes (3,420 tonnes). In Karimnagar in the State, prices shot up to Rs 5,640 a quintal.

“The demand is higher than supply. The crop in Gujarat may be around last year's level, while the Maharashtra crop is feared to be lower than estimated,” said Mr Anand A. Poppat, Vice-President of Saurashtra Ginners Association.

Mr Kalpesh Posiya, a trader in Dhoraji APMC yard, said arrivals were between 1,100 and 1,200 bags (60 kg each), lower than the usual arrivals of 1,500-1,600 bags. “The crop is lower this time due to unseasonal rain in November,” he said.

The Cotton Advisory Board (CAB) last month raised cotton production estimated this season ending September to 329 lakh bales (170 kg each) against initial estimates of 325 lakh bales. According to the Cotton Corporation of India, arrivals till January 23 were 176.76 lakh bales against 165 lakh bales during the same period a year ago.

“We don't think the crop will be over 310 lakh bales. The production will certainly be lower than CAB estimates,” said Mr D.K. Nair, Secretary-General of Confederation of Indian Textiles Industry. “Even the crop in Andhra Pradesh has taken a hit,” he said.

Gujarat's production this year is seen at 103 lakh bales (98 lakh bales), while in Maharashtra it is estimated at 92 lakh bales (63 lakh bales). In Andhra Pradesh, the output is seen three lakh bales higher at 55 lakh bales.

Cotton prices are gaining as the domestic market is reacting to the rise in the global market, while reports of more cotton being allowed to export was also putting pressure on the market, Mr Nair said. “The Cotton Corporation of India is buying in the domestic market and it is also pushing the price up,” he said. Mr A. Ramani, cotton analyst with the South India Cotton Association, termed the surge as “an unjustifiable increase in prices” despite sitting on a comfortable cotton stock position. Cotton Advisory Board estimates a total supply of 374.50 lakh bales against a demand of 330 lakh bales.

Mr Ramani said: “The Board estimate is a carefully drawn figure that is neither bullish nor bearish with regard to cotton prices”.

The escalating price of DCH-32 is a serious cause of concern. The price of DCH-32, an ELS variety widely grown in Karnataka, alone has zoomed by almost 85 per cent in a year. Data available with the SICA indicate that spot prices of the variety during the fortnight of January 1-15, 2010, was Rs 40,000/candy and is now ruling at Rs 64,000.

Mr Poppat and Mr Posiya said buying by spinning mills in the South was driving the prices up.

“The market is aware that production is lower and the carryover stock will be around 25 lakh bales only against initial estimates of 44 lakh bales. Under such scenario, cotton prices can only rise,” Mr Nair said.

Bloomberg reports: Cotton futures in New York advanced the 6-cent limit imposed by ICE Futures US, climbing to a record, on speculation import demand from China, the world's biggest user of the fibre, will be sustained, tightening global supply.

The March-delivery contract, the most active, climbed as much as 3.6 per cent to the all-time high of $1.7283 a pound and was at $1.7282 a pound by 11:26 a.m. in London. Cotton prices have climbed 22 per cent this year.

(This article was published in the Business Line print edition dated January 28, 2011)
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