Indian cotton prices drop to 2-year low on slack demand

Cotton prices in India have declined to a two-year low on slack demand due to economic woes in western nations, particularly the US and UK, traders have said.

“There is practically no demand for cotton despite a low crop, which is in the range of 300 lakh bales (of 170 kg), including the carryover stock from last year. But the demand for garments in western countries is slack due to economic troubles,” a source working for a multinational trading firm said. Hence, mills are not ready to buy even if farmers are willing to sell kapas (unprocessed cotton) at ₹7,000 a quintal  

“There is no parity for kapas. While kapas arrivals are low, the low offers from spinning mills is proving to be a dampener,” said Anand Popat, a Rajkot-based cotton, yarn and cotton waste trader.

“Cottonseed prices have dropped below ₹3,000 a quintal, while the price of ginned cotton is down to ₹56,000-55,000 a candy (356) due to lack of demand,” said Ramanuj Das Boob, a sourcing agent for multinationals based in Raichur, Karnataka.

CCI MSP buys

Raw cotton prices have now dropped to ₹7,200-7,300 a quintal and in some cases to the minimum support level of ₹7,020 a quintal for long staple cotton and . “It is at a level that farmers have not seen the last two seasons,” Das Boob said.

Currently, Shankar-6 cotton, the benchmark for exports, is quoted at ₹54,850 a candy (356 kg)  in Rajkot, Gujarat. On the other hand, at Rajkot agricultural produce marketing committee (APMC) yards, raw cotton is quoted at ₹7,100 a quintal.

In the global market, cotton futures on InterContinental Exchange, New York, are currently quoted at 78.25 US cents per pound (₹51,600 a candy).

The drop in cotton prices has resulted in the Cotton Corporation of India (CCI) producing 2.5  lakh bales (170 kg each) from growers at MSP. It has so far spent over ₹900 crore in these purchases.

Polls delay arrivals

“CCI purchases are not much compared to the arrivals of 58 lakh bales till now. Last week, about 9 lakh bales arrived across various APMCs in the country. Daily arrivals were 1.1 lakh bales to 1.3 lakh bales,” Popat said. 

“Arrivals have been low till now due to elections in Madhya Pradesh and Telangana. Now that they are over, arrivals will pick up and peak. This could put further pressure on prices,” Das Boob said.

Popat said spinning mills are facing problems with yarn prices declining. “Prices of CCH-30 (combed cotton hosiery) yarn have dropped by ₹10-15 a kg. There is no yarn movement,” he said.

Indian Texpreneurs Federation (ITF) Convenor Prabhu Dhamodharan said cotton prices are gradually bottoming out in alignment with actual demand trends. 

Challenging situation

An estimation  based on the utilisation survey of 5 million spindles in Tamil Nadu and survey reflects that overall in South India, yarn output in November dropped approximately by 17 per cent in South India, he said. 

“The current situation is challenging for a lot of spinning mills. Yarn production was lower in this region by about 3.5 to 4 to crore kg during November compared to the peak utilisation levels.  Also, 200 mills in the southern region are using 10-20 per cent viscose to produce blended yarn,” Dhamodaran said.  

Low prices could encourage buying by exporters. “Exporters will start showing interest once prices drop to levels of ₹54,500-55,000 a candy. Right now, only Bangladesh is buying,” Das Boob said.

“About 3.5 lakh bales have been picked up for exports. But shipments of cotton and yarn are less,” Popat said.

Non-cotton fibres growth

Dhamodharan said two factors will keep cotton prices under check over the next few months. “Reduced production by the spinning sector to the tune of 15-20 per cent in major consuming States such as Tamil Nadu in the current quarter and increasing trend of spinners making synthetic and cellulosic fibres blended yarn will rein in prices for next few months,” he said.  

Non-cotton fibre sales from manufacturers showing healthy year-on-year growth. The ITF Convenor said the trade expects less volatility during the current season to September 2024. There will be a more stable trend within the ₹1,000-1,500 per candy fluctuation, which is a very basic necessity for the entire value chain’s export competitiveness and performance.

The source working with the multinational firm, who did not wish to be identified, said the current trend will continue for another couple of months. “Something has to happen to drive demand. But we don’t see anything happening now,” the source said. 

Though the US crop is lower, Brazil is making it up. “But slack demand is stopping the market,” the source said. 

Dhamodharan said though retailers have begun showing interest in placing new orders after the exhaustion of their excessive inventories, all of them are playing it safe and keeping tight control on their inventory. “We need to wait until the first quarter of the upcoming calendar year to get exact visibility of consumption trends in all developed markets,” he said.  

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