Unstable cotton price situation which prevailed in 2010-11 is now no longer a concern for the industry. Analysts and industry stalwarts expect stability based on the overall global cotton position which is quite comfortable, and it is expected that at the end of the current year, the closing stock of cotton should be about 73.5 million bales, which will be 11 per cent above the stock of 2011-12, hence globally the prices should remain stable.
Cotton Advisory Board has estimated this year’s total cotton production (the cotton year starts in October and ends in September) at 33.4 million bales, compared to 35.3 million last year. The 2012-13 production would be lower due to scanty rainfall in major growing areas of India’s western State of Gujarat. However, output in India’s southern State of Andhra Pradesh is expected to be 7.2 million bales compared to 5.6 million last year, compensating for the loss in Gujarat. Consumption of cotton by mills and non-mill consumption is expected to be higher this year compared to last year.
[bleft]The cotton prices in India are expected to remain within the range of Rs. 34,000 per candy ± 5 per cent. Since the import and export of cotton is open in India, hence if the prices of cotton will go up beyond Rs. 34,000 per candy, the cotton consuming mills will import the cotton. At the same time, if the prices will go down below Rs. 32,000 per candy, which is minimum support price, then the Government will enter into the purchases and will not allow the prices to go down below this level.” – Y.C. Gupta CEO, LNJ Denim[/bleft]
India’s cotton exports in 2012-13 are expected to fall to 7 million bales (170 kilograms) compared with 12.8 million bales last year, following a sharp fall in Chinese demand. According to the Cotton Advisory Board (CAB), China’s total imports are projected to fall to 2.5 million tonnes this year, half of last year’s level. Around 65 per cent of India’s cotton exports go to China. “China’s imports will be lower this cotton year as their crop is good and there will be less need to import,” states A B Joshi, India’s Textile Commissioner. Adds Sanjay Jain, Managing Director, TT Ltd., “The cotton prices would remain stable, as China has already accumulated huge stocks of cotton. Further India’s crops, despite poor rains, will still be reasonably big at 334 lakh bales.”
However, as usual China’s import policy may still play a major role, as the price of cotton are higher in China, in the range of US $ 115-120 per lbs, and if China allows big imports of cotton, then the prices in India and rest of world will go up. India’s cotton prices are already higher compared to global ones. “We cannot rejoice as of now, but the situation does look under control with no major fluctuation expected,” reasons Mukesh Bansal, Vice-President, Vardhman Textiles.
Traditionally Chinese mills enter Indian market to buy their requirements by first week of October against December quota. Since mills have to utilize their import quota before 31st December hence there is always an aggressive buying from mills as well as international traders to utilize the import quota. “This year China has put on hold their buying as the companies feel that the prices will drop down further,” avers Anil Nair V-P Marketing, Cotton Yarn, Alok Industries Ltd.
Would China Increase its cotton Yarn Exports?
China undoubtedly is moving rapidly up in the value chain so rather buying cotton and converting it into yarns, the country would increase its cotton yarn sourcing from India.
“Although China is expected to reduce imports of cotton from India, they may start importing cotton yarn,” opines Umang Kapasi, Joint Managing Director of the Coimbatore-based Shri Vardhaman Cotton Corporation. Sanjay Jain agrees with the thought. “They would be buying more of cotton yarn from India, hence availability of cotton for spinning will be ok,” he reasons.
Impact of Government Policies
Last year’s cotton policy had a major impact on the world cotton scenario, as the prices shot up due to short supply of cotton in the international market followed by speculators pushing the market to the highest possible level of 220 cents/pound. Also the opening and closing of cotton exports almost at will, also made the situation uncertain.
However, for this season no major changes in cotton policy are anticipated. “We expect the Government to enter the market and buy cotton from the farmer at MSP prices, and even if the cotton prices fall this would provide stability to prices at the lower level,” reasons Sanjay. “The crop report from all cotton growing regions are positive indicating that the global market should stabilize between 0.75 cents/pound to 0.85 cents/pound,” adds Anil.
Y.C. Gupta, CEO, LNJ Denim too feels that the Government has made their point very clear with regard to not intervening in the cotton export/import; hence the import/export of cotton from India will depend on the global prices of cotton vis-à-vis, the price of cotton prevailing in India. “I do not feel that there is any bottleneck in keeping the situation stable by the Government. Now, the cotton prices in India will be automatically controlled by the global prices of cotton,” he concludes.
