Cotton has touched a 10-year high and its prices are advancing daily, both in the international and Indian markets. Abundant liquidity combined with robust demand for goods has created a bullish momentum during 2021.
But now, all fundamental factors are changing and it’s time to be more alert on purchases and inventories, because fall from the current price will be sharp and quick.
A segment of the industry believes that current cotton prices will not sustain as fundamentals are not in support.
Prabhu Dhamodharan, Convenor, Indian Texpreneurs Federation (ITF), Coimbatore said that fashion goods’ demand is falling due to inflationary trends across all markets, and a shift in spending towards services. At the same time, US and UK retail sales contracted in December and the January Consumer Confidence Survey in the US fell by nearly 6 per cent to its lowest level since November 2011.
The recent bull run over the past 45 days is mostly speculative in nature and ITF feels that the current prices are not sustainable. ITF has alerted our member manufacturing companies to deal with the situation carefully.
“We are getting feedback from international markets about resistance from customers towards accepting new prices and the same signals are reflecting in the new order confirmations from developed markets,” Prabhu said and further added that cotton is not an essential commodity like edible oils or rice. Its demand purely depends on the spending power of people. With inflation on the rise, the spending power will be put to test and a lot of demand destruction is inevitable for cotton going forward.
It is also pertinent to mention that alternate fibres are penetrating rapidly using the opportunities rising due to high cost of cotton. ITF is witnessing this change in many weaving clusters in Tamil Nadu. This will also re-balance the demand equation.
Prabhu said that the industry is facing resistance from value chain partners even up to the retail side in domestic markets, due to high prices. The inflationary trend is also hitting consumption and retail is opting for alternate fibre products. Signals from developed countries on tightening the liquidity and raising interest rates will also reduce the speculative interest in cotton, that too at these historically high prices.
