Despite virus threat, cotton trade confident of meeting export targets

The outbreak of coronavirus, which spread from China to over a dozen countries, is unlikely to pose a major threat to India’s cotton exports as India’s rates are competitive in the international market and the exports can be diverted from China to other markets, a trade body has said.

Downplaying the threat from coronavirus and its impact on the export trade, the Cotton Association of India (CAI), the apex trade body, said there are no specific concerns.

‘No worries’

“On the export front, we are doing good and there is no concern over China virus scare. Exports are going on smoothly and we have so far exported about 600,000 bales (each of 170 kg) to China. Total exports stand at about 22 lakh bales, which means we will be able to achieve our export target very comfortably,” Atul Ganatra, President, CAI, told BusinessLine.

The CAI in its latest estimate has projected exports for the season (October 2019 to September 2020) at 42 lakh bales. One of India’s largest cotton exporters, Kotak Commodities, has indicated that even if China remains a concern area, there would not be much impact on India’s cotton exports.

Vinay Kotak, Director, Kotak Commodities, said, “There is some concern on the China virus. But if this virus problem is resolved within 10-15 days, then there will be no issue. However, even if the China concerns remain, we may be able to achieve our export targets. Currently, Indian cotton is cheapest in the world so we may be able to gain some extra share in our other existing markets.”

The existing markets include Bangladesh, Vietnam, Indonesia and Taiwan.

Pricing advantage

The cotton rates in India is currently hovering at around ₹39,500-40,000 per candy (each of 356 kg of ginned cotton), whereas the international rates are quoting around ₹46,000, which clearly indicates an advantage for Indian cotton in the global markets.

“Our rates are cheapest in the world and we believe that the bottom rate appears to be at ₹39,000,” said Ganatra, hinting that India’s cotton will have no difficulty finding a market elsewhere.

“The Indian prices are tagged with ICE Futures rates (New York market). So, if the ICE futures go down, there will be some impact on Indian prices but that doesn't seem to be happening any time in the near future,” Kotak added.

Meanwhile, looking at the India’s cheaper rates and the projected cotton output of 354.5 lakh bales for the season, the government cotton body, Cotton Corporation of India (CCI) has conducted procurement of the fibre crop from farmers at the minimum support price (MSP) rates, which is ₹5,550 per quintal.

The CCI has already bought about 45-50 per cent of the overall arrivals across the markets in India. As per trade data, so far about 180 lakh bales have arrived in the markets as of January-end, and the CCI purchased about 48 lakh bales so far. This means farmers are still holding about 50 per cent of the crop. Considering the current price trend and the stocks available with the farmers, “CCI purchases may touch about 80 to 90 lakh bales easily during the current season,” Ganatra said.

Pressure on prices

Raw cotton prices have remained under pressure as the arrivals peak. The prices at cotton markets across the country were quoted in the range of ₹4,800-5,200 per quintal, which is much below the MSP.

However, the demand outlook remains strong and trade sources do not see prices to have bottomed out. “There is a revival in the domestic market. So we are not totally dependent on the international market,” Kotak added.

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