Too much supply may weigh down cotton

Estimates suggest 10-12 per cent increase in domestic output

Textile companies and other users of cotton stand to benefit in the coming months, with the price of cotton set to move lower.

While there could be a short-term spike, this trend is unlikely to sustain. Excess supply in the domestic and international market is the key factor that will apply pressure on prices.

The prices of cotton in the domestic market have fallen to ₹42,400 per candy from ₹47,800 in August 2016. Early import of cotton this year has ensured adequate supply in the market, hence prices moved down. Similarly, the international benchmark, Cot A Index, has also fallen from $82 per pound last year (August) to $70 per pound.

Bumper harvest expected

The price decline is mainly led by increase in supply. According to the latest kharif crop sowing data (August 2017), the area under cotton has gone up 19 per cent to 114 lakh hectares this kharif cotton year.

Increased sowing has been reported in Telangana, Gujarat, Maharashtra, Rajasthan, Haryana, Odisha and Tamil Nadu. The industry expects bumper production this kharif cotton year 2017.

Favourable monsoon and attractive prices have spurred many farmers to take to cotton, resulting in aggressive sowing activity. The prices inrose during June-July due to floods; however, over the last few weeks, prices corrected after re-sowing began.

Gloomy outlook

In the last few years, India’s cotton exports have declined sharply, adding to the excess supply in the market.

Exports have been sliding, from 114-118 lakh bales in a year between 2011-12 and 2013-14 to 79.17 lakh bales in 2015-16 and 58.82 lakh bales in 2016-17.

The lack of availability of quality cotton from domestic producers is responsible for this.

However, this year (2017-18), according to the International Cotton Advisory Committee (ICAC), cotton exports may rise again by 2 per cent or 9.3 lakh tonnes due to surplus output. China, one of the major importers of cotton from India, is also expected to increase import, with its stock likely running low, says Prabhu Damodaran, secretary of Indian Texpreneurs Federation.

Estimates from an industry expert in the market have put the total domestic output for the year at 10-12 per cent higher from last year’s 337.25 lakh bales (of 170 kg each). This could lead to decline in cotton prices. According to ICAC estimates, global cotton production is likely to be higher by 8 per cent at 24.9 million tonnes in 2017-18 as the area under cotton increases.

But consumption is likely to be up by only 2 per cent to 25 million tonnes. If the the opening stock for the year is added, the surplus is likely to increase further.

Thus, with the surplus cotton output in the market, domestic prices are unlikely to move up in the medium term.

International cotton prices are also expected to remain low, given the expected higher supplies this year from the US and also Pakistan.

Plus, domestic prices being linked to global prices, prices will remain on the lower side.

However, for the short term, prices are likely to inch up as the mills are running short on stocks and new arrivals are likely to start only by the middle of September.

Read the rest of this article by Signing up for Portfolio.It's completely free!

What You'll Get

This article is closed for comments.
Please Email the Editor