As cotton prices skyrocket, textile industry raises concern

The Indian textile industry has begun expressing concern over soaring cotton prices in global and domestic markets, with some even raising fears that the natural fibre is being hoarded.

In a memorandum to Prime Minister Narendra Modi, Southern India Mills Association (SIMA) Chairman Ravi Sam called for steps to stabilise cotton prices, particularly when the country had over 100 lakh bales (170 kg each) of opening stocks this season (October 2021-September 2022).

Higher output

Besides high opening stocks, cotton production this season is likely to be higher at 360 lakh bales against 353 lakh bales, according to cotton trade. SIMA’s concern is more in view of the fact that Tamil Nadu accounts for 50 per cent of total cotton consumption in the country.

While arrivals of the new cotton crop have begun flooding domestic markets, prices have skyrocketed to a new high of ₹66,000 a candy (356 kg) of ginned cotton. Raw cotton modal prices (rates at which most trades take place) in Gujarat’s Rajkot agricultural produce marketing committee (APMC) yard have increased to ₹7,625 a quintal during the weekend.

Also read: India’s cotton crop estimated at 360 lakh bales for 2021-22 season

In Karnataka’s Bijapur APMC, modal prices have whizzed past ₹8,600 currently. On the New York Mercantile Exchange, cotton prices have soared to a 10-year high of 117.99 US cents a pound (₹69,950 a candy) as production this year is low and supply has been affected.

50% rise so far in 2021

According to the US Department of Agriculture, world ending stocks are projected to be lower this year as also exports, while consumption is seen higher. This has led to over 50 per cent increase in cotton prices since the beginning of 2021.

The increase in cotton prices has now led to the industry urging the Centre to order the Cotton Corporation of India (CCI) to procure the natural fibre from growers. However, cotton farmers and trade see little role for the CCI to make market intervention since prices are far above the minimum support price (MSP) of ₹5,726 a quintal for the medium staple variety.

SIMA’s Sam said an analysis of cotton price data for 10 years shows that the domestic industry procured just one-third of the cotton produced, while the rest were mostly purchased by the trade or Cotton Corporation of India (CCI). Cotton prices rule low from November to March, he said.

“The government should look at measures for price stability and the CCI should adopt policies that will enable the industry, especially micro, small and medium mills, to buy more directly from it,” the SIMA Chairman said.

SIMA has been supported by the Tirupur Exporters Association (TEA) in raising the issue of high cotton prices.

Speculators behind surge?

TEA President Raja M Shanmugam, in a letter to Prime Minister Narendra Modi, said CCI should be directed to “protect the interest of farmers at the first instance and should equally act as a facilitator or catalyst to accelerate the growth of the textile industry’s value chain”.

He said CCI needs to open its supply chain centre based on the demand request to facilitate the speedy availability of cotton at the user-end. The corporation should be mandated to supply cotton directly to small, medium and large enterprises textile mills.

Rikhab C Jain, Chairman, TT Group, in a statement, said speculators were driving up cotton prices and CCI was raising prices by ₹300-₹1,000 a candy every day. He alleged irregularities in domestic cotton futures and hedging in New York.

“Speculators are trying to make money at the cost of the whole cotton textile chain and industry,” he said.

The cotton trade, however, says the carryover stocks are 75 lakh bales with consumption and exports being higher than initial projections.

CCI Chairman PK Agarwal told BusinessLine last week that the corporation would not have to enter the market since prices are ruling above the MSP.

CCI’s mandate is to enter the cotton market only in the event of prices dropping below MSP.

Yarn price trend

“Cotton prices are increasing but yarn prices are rising further than that. There is very good demand for yarn in domestic and export markets. All spinners are buying cotton aggressively to build inventory,” said Anand Poppat, a Rajkot-based raw cotton, waste and yarn trader.

But a textile industry expert said spinning mills are unable to hike yarn prices in line with the rise in cotton prices.

Another leading trader, who did not wish to be identified, said spinning mills had 30-45 days of running stocks and they should be able to manage their costs despite the rise in cotton prices.

Poppat said demand was good for cotton exports, particularly Bangladesh which finds India a better option. But the current bullish streak in the global market could be broken as speculators were cutting their open positions.

But non-availability of ample cotton and firm export demand point to the bullish trend continuing, probably after a break in the bullish streak.

Exports may dip

Though daily arrivals are expected to top two lakh bales (170 kg each) in the coming days, cotton prices will stay stable to firm over a longer period, Poppat said. SIMA Secretary-General K Selvaraju said prices are likely to drop as arrivals gather pace.

Though traders and experts say cotton exports could be lower this season at around 50 lakh bales compared with 78 lakh bales last season, Poppat says the quality of the crop is good this year and export demand will likely be good -more than what is being estimated.

Selvaraju said if exports turn out to be more than projected, then the textile industry could be heading for a crisis. It was for this reason that the SIMA Chairman wrote to Modi.

The other issue for the rise in cotton prices is the rapid rise in crude oil prices. With Brent crude oil prices ruling at over $83 a barrel, prices of synthetic textile products have also increased in tandem.

Fitch Solutions Country Risk and Industry Research, a unit of Fitch group, said in a note that increased prices for oil-based synthetics is supporting demand and prices for their natural equivalents such as cotton.

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