Cotton prices in the global market increased to a six-month high last week, but the domestic market is unlikely to be influenced by it. Prices in the Indian market are expected to rule at current levels.

“The rise in global cotton prices raises may questions. It looks oversold and we think the market is being manipulated by US shippers,” said A Ramani, a cotton industry analyst and an official of the Indian Cotton Federation from Coimbatore.

“Globally, cotton prices have run up due to speculator interest. We don’t think it will have any effect in the domestic market,” said D K Nair, Secretary-General of Confederation of Indian Textiles Industry.

Last week, cotton gained 1.05 per cent on the ICE US, New York, at 92.19 cents a pound (Rs 42,200 for a candy of 356 kg).

On Monday, cotton futures maturing for delivery in May ruled at 92.24 cents on the ICE US. In the last one month, the natural fibre has gained 3.60 per cent.

“We think it is demand from China that is driving up global prices. US cotton quality is good and 80 per cent of the crop there has been sold out,” said Anand K Poppat, an official of the Saurashtra Ginners Association in Gujarat and an exporter.

According to the US Department of Agriculture, stocks in US warehouses will be at a four-year low of three million bales (of 217.72 kg each) at the end of the season in July. Exports from the US is projected nearly two per cent higher at 10.7 million bales.

“No doubt, US export sales are high but no one is sure if it is genuine sale or transfer of stock to the Far-East. This could have been done because US shippers would have wanted prices to drop,” said Ramani.

China, the largest importer, bought 35 per cent less cotton in February and since the beginning of the year, its cotton purchases from overseas are 36 per cent lower compared with the same period a year ago.

“Chinese imports are substantially lower since the beginning of its lunar New Year. There is a big question mark over the Chinese factor,” said Ramani.

One problem with regard to China is the huge cotton reserve it holds.

“Stocks with China are equivalent to what it consumes over one-and-a-half years,” said Ramani.

“They (stocks) are a mind-boggling 70 million bales,” said Poppat.

That is almost equal to what India produced together in the last two seasons. Global stocks at the end of July are projected at around 95 million bales by the USDA.

“The current global rally is not sustainable and prices will come under pressure,” said Ramani. It is borne by the discount to the nearly 11 cents discount to December futures on the ICE US.

In the domestic market, prices could rule below Rs 43,000 a candy. Currently, prices are hovering around Rs 42,000 for Shankar-6 variety, the one in demand for exports.

“Recent rains could affect the last round of cotton pickings but prices are seen on leash because of a higher crop,” said Nair.

Cotton production this season to September has been projected at 375 lakh bales (of 170 kg each) against 365 lakh bales last season.

“Production could be higher, at least in Gujarat where the output is likely to be 130-135 lakh bales,” said Poppat. The Cotton Advisory Board has pegged Gujarat’s production at 116 lakh bales this season.

Despite higher production, prices will rule stable in view of exports, projected at 90 lakh bales. Last year, 101 lakh bales were exported. Till February, 78 lakh bales have been shipped out.

“Besides China, we are exporting to Pakistan, Bangladesh, Indonesia, Taiwan and Vietnam,” said Poppat.

Bangladesh and Vietnam are currently offering higher prices for Indian cotton compared to others since they hold the advantage of cheap labour.

Bangladesh is offering up to Rs 44,600 a candy, while Pakistan is offering not more than Rs 44,100. The Chinese are paying less than Rs 42,200.

“Current domestic prices are just helping spinning mills to make both ends meet. Any further rise will result in losses,” said Nair.