Cotton prices are ruling steady over the past month helping in demand improving from spinning mills, traders and multinational trading houses as the general consensus is that the market may not drop any more from here.

“It is unlikely that there will be any sharp fall in prices from here. It is one reason why mills are buying. Also, prices on InterContinental Exchange have increased by 4 cents in the past couple of sessions encouraging international trading houses to buy,” said a trading source without wishing to identify. 

“The cotton market has been steady over the past month at ₹54,100 and ₹55,500 for 29 mm and 30 mm cotton, respectively. The demand has been steady from mills and exporters are buying small quantities,” said Ramanuj Das Boob, a sourcing agent for multinationals based in Raichur, Karnataka.

Lack of liquidity

“Cotton prices seem to have bottomed out. The difference of 2-3 cents between domestic and global prices is attracting multinational trading houses,” said Anand Popat, a Rajkot-based cotton, yarn and cotton waste trader.

However, Prabhu Dhamodharan, Convenor, Indian Texpreneurs Federation (ITF), said though current prices are reasonable, the lack of liquidity in the market has reduced the purchasing power in the trade for cotton.

Currently, March futures on ICE are ruling at 82.81 US cents a pound (₹54,425 a candy of 356 kg). For cash, the natural fibre is quoted at 80.26 cents (₹52,750 a candy) on the exchange. 

Demand for quality

In the domestic market, Shankar-6, the benchmark export variety, was quoted at ₹55,300 a candy. In Gujarat’s Rajkot agricultural produce marketing committee yard, kapas (unprocessed cotton) ruled at ₹6,885 a quintal against the minimum support price of ₹6,620. 

“As traders perceive that this is the minimum price one can expect, they are stocking up on quality material. Given the variations in quality, there will always be demand for quality cotton at this level, This is the best time to procure,” said Das Boob.

“The Cotton Corporation of India (CCI) has procured some 20 lakh bales (of 170 kg) till now. It could have procured 40-50 lakh bales in a month from now. Others could hold 15-20 lakh bales. This could push up prices,” said Popat.

Retail buyers cautious

The trading source said CCI procurement was surprising and it could decide the market movement later in the season. Popat agreed with the view that CCI could be crucial in how prices rule later this season. Das Boob said CCI procurement may top 30 lakh bales.

“Imported synthetic dyed fabrics imports are grabbing the market share of cotton fabrics. Sluggish domestic demand at the retail end has turned buyers cautious. It has resulted in manufacturers witnessing the demand fluctuating,” said Dhamodharan.

The Raichur-based sourcing agent said this is the best time to procure the quality fibre. “We feel quality cotton will maintain this price level and in the near future, depending on yarn demand, may rise once arrivals decline,” he said.  

The ITF Convenor said though the overall cotton utilisation has improved compared with the previous two quarters, the textile sector continues to operate at lower levels as the visibility of strong orders was lacking.

Red Sea crisis not big

“Yarn exports have stabilised with challenges in pricing, leading to margin pressure for mills. Apparel exports recovery is uneven across products and still we are behind our historic volumes,” he said. 

All these factors were leading to a cautious approach among spinners towards buying cotton and mills are buying based on their own order visibility, said Dhamodharan.

The Raichur-based sourcing agent said mills are covering at a slow speed due to low yarn demand.  “Most of the reputed mills are covering cotton at this level to maintain the quality requirements.

“The market movement mainly depends on yarn offtake and demand in the local market and exports. Average grade quality cotton is also available with shorter length with prices ruling at ₹50,000-53,000 a candy. Prices of these may also improve and there is ample availability,” said Das Boob. 

Though the Red Sea crisis has resulted in freight charges surging, it has not emerged as a big issue for yarn exporters, said Popat. 

The current trend is despite fears of a lower cotton crop this year. The Ministry of Agriculture, in its first advanced estimate, pegged the output at 316.6 lakh bales, 5.9 per cent lower from 336.6 lakh bales a year ago. A section of the trade says production could be below 300 lakh bales, while some peg it at a little over 320 lakh bales.