Cotton prices slide but upside unlikely on ample stocks, say traders

Cotton prices that have declined sharply from highs touched last season are nearly at their bottom and likely to trade in a broad range in the near term, cotton traders and exporters said.

But an upside in prices is unlikely they said. The lowest they are likely to touch is Rs 30,000 a candy ( of 356 kg), said Mr Shirish Shah, Partner, Bhaidas Cursondas & Co, a cotton ginning and trading company.

The new cotton season that commenced on October 1 has witnessed a 10 per cent decline in prices of Sankar-6 variety to Rs 34,400 a candy, data from Cotton Association of India website showed.

Already, cotton prices have declined from their peaks touched last year.

In the previous cotton season, prices of the same variety had touched a high of Rs 62,000-64,000 a candy prompting the Indian government to temporarily suspend shipments and subsequently allow restricted exports.

“Cotton prices should trade in the range of Rs 30,000-35,000 a candy in the next few days unless government intervenes. It is unlikely that prices would go below Rs 30,000,” Mr Shah said.

Yarn prices

If prices move down exporters are likely to step in and buy, said Mr M.B. Lal, Managing Director, Shail Exports Pvt Ltd. Mr Lal is the former Chairman and Managing Director of Cotton Corporation of India and headed the government's Technology Mission on Cotton.

While mill consumption has declined, demand for cotton yarn especially from European countries has been sluggish, he said.

Last year many mills had bought cotton at high prices and have not been able to recover the cost as yarn prices also crashed in sync with cotton rates.

Mills today are consuming 14-15 lakh bales every month against the normal average of 22 lakh bales, said Mr Bhadresh Mehta, Managing Director, Bhadresh Trading Corporation Ltd.

Exports are also low due to weak demand and unfavourable prices, he said.

The sharp spike in cotton prices last year has wreaked havoc on the industry and the repercussions are felt till today, exporters said.

The fall in rates has prompted cotton growers, especially in Maharashtra, to demand higher support prices. Recently, the Maharashtra government agreed to offer assistance to cotton farmers in the state.

Cotton farmers in Gujarat have also raised demand for financial aid.

Although cotton prices appear to have temporarily bottomed out an upside movement is unlikely because of ample supply, traders said.

Upside unlikely

India is on track for a huge crop with Cotton Advisory Board estimating an output of 356 lakh bales (of 170 kg) for the 2011-12 (October-September) cotton season, up from the previous season's 325 lakh bales.

World output of cotton is also seen higher at 26.86 million tonnes for the year 2011-12 (August-July) compared with 24.88 mt in the previous year.

Also, arrivals that have been slow this season would start picking up after mid-January, traders said. Cotton arrivals until December 18 stood at 73.63 lakh bales compared with 100.35 lakh bales for the same period last year.

Expectations of a huge output amidst weak demand would keep prices under wraps.

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