Varying cotton estimates put mills in quandary

At a time when the capacity utilisation levels of textile spinning mills have been reduced to well below 40 per cent, the speculation about cotton crop estimate appears to have aggravated the situation. The lower capacity utilisation is primarily due to two reasons -- poor off-take of yarn and labour shortage.

“Investment bankers and traders have started speculating on the price front, while ginners are holding on to huge inventory of high-priced cotton. This is good neither for farmers nor for the industry,” said an industry insider.

Stating that the cotton situation is good globally, J Thulasidharan, Managing Director of Coimbatore-based Rajaratna Group of Mills, said: “In India, there has been a slight shift to use of man-made fibre. Consumption of cotton, therefore, is expected to be less, apart from the drastic cut in the utilisation levels by many mills.”

“Speculation about the cotton crop by different bodies does not augur well at this juncture. The Cotton Advisory Board (CAB) has not met in the last six months. The Board in the normal course will meet at least 2-3 times between December and May to assess the crop situation. The Government has failed in its duty and this is affecting the farmer and the industry,” said Thulasidharan, who is also the President of Indian Cotton Federation (ICF)

The Cotton Association of India (CAI) in its April estimate has pegged the crop for 2018-19 season (beginning October 1, 2018) at 315 lakh bales. This is far lower than the CAB’s estimate of 361 lakh bales (on November 22, 2018) and the Confederation of Indian Textile Industry’s (CITI) estimate of 343 lakh bales (on April 15, 2019).

Questioning the veracity of CAI’s estimate, industry sources stressed the need for putting a full stop to such speculation and enforcing the April 26, 2017 notification issued by the Ministry of Textiles on submission of all related statistics (from manufacturers and traders of textile items) to the Office of the Textile Commissioner.

“Even after a year of the issue of such a notification, it continues to remain on paper, not been enforced,” said G Selvaraju, Secretary General of the Southern India Mills Association (SIMA).

Official data on the cotton crop show the inventory pile up at the beginning of the season (October 1, 2018) at 47.12 lakh bales, whereas the CAI estimate has put it at 28 lakh bales.

This difference, coupled with fall in production estimate, has only led to confusion. “Changing Government data can be misleading. How can they (CAI) tinker with the opening stock?”.

According to Selvaraju, this uncertainty and panic have pushed the mill sector here to import the white fibre. “Mills have already contracted to import around 18 lakh bales as international prices are attractive. Rising imports will have an adverse impact on the crop acreage next year. That’s not all. As the domestic cotton is priced high (compared to international price), exports will slide; increased supply and drop in consumption will result in inventory pile up,” he said, adding that “a conservative estimate of the cotton balance sheet indicate that we will be left with abundance at the end of the season, almost at the 2014-15 closing stock level of 66.23 lakh bales, if not more.”

A comparison of the data on cotton arrivals shows a drop of 8 lakh bales at 278 lakh bales during the current season against 286 lakh bales during the corresponding period of the earlier season. This corresponds with the drop in production estimates from 370 lakh bales in 2017-18 season to 361 lakh bales in 2018-19 season, the SIMA Secretary General said, adding that “there were quality issues due to pink bollworm infestation last year, but the quality of cotton has been very good this season. Drought did impact the crop in the Maharashtra and Gujarat cotton belt, but it was not huge.”

Sanjay K Jain, Chairman, CITI, urged industry stakeholders not to panic, as the supply position is very comfortable. “Thanks to a big opening stock, huge imports and smaller exports, the production deficit is well covered. India will have no shortage of cotton in 2018-19.”

Thulasidharan impressed upon the need to usher in policy changes. “The government should consider a policy for easing the financing norms. The amount required will be around ₹70,000 crore to ₹80,000 crore. Rising prices will benefit traders and multinationals. While a few mills have the wherewithal to cover cotton during the season, the have-nots tend to suffer. The Cotton Corporation of India should come up with a policy for the have-nots.”

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