Record domestic cotton prices lower than global rates

While cotton prices have run up to a record Rs 50,000 a candy (of 356 kg), they are still lower than the rates in the global market for the comparable quality produce. And, with small and medium mills having stocks that can last not more than a month, prices could come under further pressure.

On Monday, raw cotton in Rajkot was quoted at Rs 5,375 a quintal, down Rs 575 in the last two sessions on higher arrivals.

“Cotton prices, after touching Rs 51,000 a candy for Shankar-6 in Gujarat, have now dropped to below Rs 50,000. In comparison, global prices are higher,” said Mr A. Ramani, cotton analyst.

While Shankar-6 is quoted at 155-160 cents c&f for exports, comparable cotton from other destinations is quoted at 180-200 cents.

Former Cotton Corporation of India's Chairman-cum-Managing Director, Mr M.B. Lal, said domestic cotton prices are lower by Rs 15,000 a candy compared with global prices.

“Domestic prices have eased in the last two days as arrivals have picked up,” he said.

“People are talking about higher cotton prices in the domestic market. But are farmers paid price on par with global prices?” asked Mr Manickam Ramaswami, Managing Director of Loyal Textiles.

“The problem for spinning mills is that they are not able to procure cotton at these prices. Small and medium mills have stocks that can last between 15 days and a month. Big mills may have stocks that can last them two months,” said Dr K. Selvaraju, Director-General of Southern India Mills Association.

Arrivals lower than CAB estimates

A short calculation on the arrivals, carryover stocks and exports shows that mills could, on an average, have stocks that can last them two-and-a-half months. However, it is likely that well-to-do mills could have higher stocks, leaving others with a hand-to-mouth situation, said trade sources.

According to sources, cotton arrivals till last weekend are estimated at 185 lakh bales.

Usually, 62-65 per cent of the crop arrives by January 31 and going by the Cotton Advisory Board (CAB) revised production estimate of 329 lakh bales (of 170 kg each), at least 210 lakh bales should have arrived by now.

“The crop is lower than CAB estimates. I see it around 323 lakh bales,” said Mr Lal.

“The crop could be around 310 lakh bales,” said Mr Ramani, while Dr Selvaraju also pegged it around this level.

“Unseasonal rain has affected the crop in Maharashtra, Gujarat and Andhra Pradesh,” said Mr Ramani.

“Maharashtra crop could be around 80 lakh bales only against CAB estimates of 92 lakh bales,” said Dr Selvaraju.

Andhra Pradesh crop is being seen around 48 lakh bales against CAB estimates of 55 lakh bales, while Gujarat crop is also seen around 95-98 lakh bales against estimates of 103 lakh bales.

This, according to trade sources, will see the crop some 24-27 lakh bales lower than CAB estimates. It also would mean that the carry-forward stocks for the next season will be much lower than CAB's projection of 44.50 lakh bales.

“Stocks may hardly last one month if our fears turn true,” said a trade source.

“Even if we go by CAB estimates, scope for further exports does not exist,” said Mr Lal.

It is the crop estimates that is now proving to be an issue for the industry, trade and policy makers.

January-February is the peak period for procurement by spinning mills. During this period, their buying will be to build inventories that can last them until the new crop arrives in October.

“High prices are creating problems of working capital for us,” said Dr Selvaraju.

The current situation means any correction could be short-lived.

“We may witness a scenario that was enacted last June when prices began to flare upthis year too,” said Mr Ramani.

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