Cotton remains under pressure as coronavirus scare disrupts trade

Weak overseas demand and continued trade disruptions caused by the coronavirus scare are putting pressure on cotton prices in the international and domestic markets.

Trade insiders believe that the global factors coupled with increased arrivals in the domestic markets will put more pressure on prices, which have already corrected by about 8-10 per cent in the past one month to touch ₹38,500 a candy (each of 356 kg of ginned cotton of 29 mm variety).

Crop outlook

Notably, international cotton futures have corrected from 70.69 cents for ICE May contract on January 29, to 62.43 cents on March 6, indicating a fall of about 12 per cent.

The Cotton Association of India (CAI), the apex trade body, on Friday retained its crop outlook at 354.5 lakh bales (each of 170 kg) for 2019-20.

Arun Sekhsaria, Managing Director of DD Cotton, which is a leading cotton exporter, told BusinessLine that from a trade point of view, coronavirus has caused some dent in the business. “Travelling (overseas) has come to a standstill due to the virus scare. Without mobility, it is difficult to make shipments. Secondly, there are hardly any buyers in the overseas markets, except Bangladesh. So, not much buying is happening at international level. In addition to that, yarn sales are not moving, while garment trade has also taken a hit.”

Market arrivals

On the other hand, daily arrivals in the domestic market have peaked and now started tapering off from earlier 2.4 lakh bales per day till last month to about 1.3-1.4 lakh bales per day now.

As per the CAI data, cotton arrivals during the months of October 2019 to February 2020 are estimated at 254.43 lakh bales, which was 213.42 lakh bales last year around the same time. This means roughly about 100 lakh bales are yet to arrive to the markets, which traders expect to happen by the end of March or early April.

Meanwhile, the Cotton Corporation of India (CCI) is learnt to have continued its purchases from the farmers, to support them from falling raw cotton prices. CCI has already bought about 75 lakh bales so far for the year, Bloomberg reported on Friday. “This is a beneficial proposition for farmers as they get about ₹500-700 more from the private trade. So we are seeing huge quantities being brought by farmers,” Sekhsaria said.

However, an Ahmedabad-based cotton exporter maintained that while the global cotton outlook remains bleak, Indian cotton has good prospects in Vietnam, Turkey and Far Eastern Countries besides Bangladesh. "Indian cotton market is not much affected due to coronavirus. The domestic cotton prices have not fallen as sharply as ICE Futures because there are other markets available to India that can be explored," added the official.