Indian cotton prices have begun to align with market fundamentals and global rates now that the demand, including for exports, has rebounded, industry participants and traders say.

Prices, however, have recovered from the lows of ₹56,000-56,500 a candy (of 356 kg) witnessed early this week. The reported move of Multi Commodity Exchange (MCX) to introduce new cotton contracts has helped buoy the market to some extent. 

Currently, ginned cotton is quoted at ₹59,500 a candy at Rajkot. In comparison, cotton futures for delivery in March is quoted at 83.1 US cents a pound (₹54,450/candy) on the Intercontinental Exchange (ICE), New York.

MCX futures

“In the global market, the going rate is 20-25 cents more than what the ICE futures quotes. Indian cotton is quoted some 10 cents above ICE. Therefore, prices are at par rather than the premium we witnessed earlier this month,” said Anand Popat, a Rajkot-based trader in cotton, yarn and cotton waste.

“Indian cotton is now aligning with market fundamentals of demand . It is a good trend from the industry’s point of view,” said Prabhu Dhamodharan, Convenor, Indian Texpreneurs Federation (ITF). 

Trade sources said prices have gained after reports that MCX will likely come out with new contract specifications for cotton futures on Friday. “We hear that MCX will launch futures for February, April, June and August. There will be some changes to the earlier specifications,” said Popat.

On August 26, MCX announced it was modifying its cotton contract specification and that no fresh position would be permitted for January 2023 and subsequent contracts. 

Maharashtra road blockade

“Cotton prices which had dropped by ₹1,000 a quintal on Monday have recovered on the news that MCX is set to revive cotton futures,” said Anil Ghanwat, President, Swantantra Bharatiya Party, the political wing of Maharashtra farmers’ body Shektkari Sanghatana. 

When prices dropped sharply on December 26 in Maharashtra, farmers staged a road blockage at Nandurbar. “The first trigger (for the price fall) came from the American markets. China cancelled a record 1.45 lakh bales of contracts, the first since 2012, leading to negative sentiments in the market,” said Dhamodharan. 

This is because China is facing turbulence in its own market. “China exports textile products valued at $270 billion and its domestic consumption for textiles is $300 billion,” he said. Such a big player facing problems and staying away from the market has led to a negative trend in the market first in the US and now in India, the ITF convenor said.

Retails sales drop 30%

“Current prices have dragged the margin for spinners, while there is no parity for ginners. This has affected purchase of cotton,” said Popat. “With prices dropping and disappointing growers, they have begun to cut the amount of cotton they bring to the market,” said Ramanuj Das Boob, a sourcing agent for multinationals in Raichur, Karnataka.

Cotton prices have dropped globally since there has been a contraction of about 30 per cent in retail sales of global fashion companies. “November-end results show major contraction to the tune of 30 per cent for some global brands in China due to Covid issues,” said Dhamodharan.  

“Prices have gained a bit now after a sharp fall. Chances of any further sharp fall in cotton prices are remote,” said Popat. One of the reasons for the likely trend is that farmers are unwilling to sell cotton at low prices.

Kapas (raw cotton) prices have dropped to levels of ₹7,500 a quintal. This is against over ₹9,000 that farmers got last year. They are looking for better prices and have cut the volume they are bringing to the market,” said the Raichur sourcing agent.

Tough to recoup offtake loss

According to data from Agmarknet, a unit of the Agriculture Ministry, prices of kapas are currently at ₹7,950 a quintal in Rajkot agricultural produce marketing committee (APMC) yard against ₹9,000 at the same time a year ago. 

“In India, 50 per cent of the spinning capacity idled in October. Though the capacity utilisation is inching up, it is not possible to recoup 30-35 lakh bales of consumption that has been lost this cotton season (October 2022-September 2023),” said ITF’s Dhamodharan.

With Indian cotton prices now aligning with the fundamentals, export demand has re-emerged. “Demand has come from Bangladesh. We expect China and Vietnam to seek cotton from us soon,” said Popat.

“We have got only a small order from Bangladesh for exports. Demand is yet to pick up to expected levels,” said Boob. 

2023 outlook

In 2023, the textile industry will have an opportunity to grow as the industry has bottomed out. “As per Mastercard spending Pulse data released last week, US retail sales are showing some momentum with apparel sales increasing by 4 per cent in value terms on a two-month basis and 14 per cent on one-week basis,” said Dhamodharan. Also, since major US and Europe retailers have not placed any orders over the past 2-3 months. “Their inventories have been exhausted or are on the verge of exhaustion. After the holidays, they will return to place fresh orders,” he said 

Chinese consumption will likely rebound. As domestic savings have increased by 50 per cent over the last two years in China, the ITF convenor said his organisation expects “revenge buying” in the Chinese retail market after 60 or 90 days. “The key to the industry’s recovery is US retail sales and the Chinese uptrend during the beginning of 2023,” he said.