Cotton prices have gained in the last few days on lower arrivals, inadequate stocks with ginning mills and demand from domestic spinning mills and China.
The Shankar-6 variety, which is in demand for exports, has increased to Rs 40,000 for a candy of 356 in Gujarat markets from Rs 38,000 at the beginning of this month. Similarly, LRA and H-4 varieties, too, have increased by over Rs 1,000 a candy. (See table)
Demand from China
“Cotton prices are moving up mainly on demand from China. Ginning mills are not having adequate stocks to meet the demand,” said Mr Anand Poppat, Secretary, Saurashtra Ginners Association.
“Demand from China is good. Export prospects are also good,” said Mr M.P. Patel, Chairman of Jaydeep Cotton Fibres Pvt Ltd, from Rajkot in Gujarat.
The rise has been reflected in raw cotton or kapas prices too. “Kapas are quoting at Rs 900-940 for a maund of 20 kg since arrivals began just a couple of days ago,” said Mr Kalpesh Posiya, a trader at Dhoraji in Gujarat. “Ginning mills are trying to build inventories as stocks with them are low,” he said.
Arrivals
Currently, 40,000 bales (170 kg each) a day are arriving throughout the country with Gujarat accounting for 12,000-15,000 bales.
“Arrivals will begin picking up after Diwali. Though prices are rising, corrections are taking place now and then,” said Mr Patel.
“Arrivals will peak only during the second week of November. Even then, we expect a firm trend in prices,” said Mr Poppat.
Import quota
China's cotton import quota expires on December 25 and buyers there must get in the consignments before that.
“If the consignments have to reach before the expiry of their import quota, then contracts will have to be shipped out before November 30. Therefore, prices will rule firm until then,” said Mr Poppat.
China's cotton export had dropped in August by 13.8 per cent, though overall imports increased for the year.The depreciation in the rupee is also keeping exporters interested since a firm dollar is getting them good margins.
No restriction on exports
“With the Government announcing that there will be no restriction on exports from this season that started this month, exports will do well,” said Mr Patel.
Exports, on the heels of a projected record production, are expected to be around 70 lakh bales against 83 lakh bales last season. A higher crop in the US could result in exports from India being lower next year.
The higher crop prospects in the US have led to cotton futures dropping to $1.0051 a pound. This is over 50 per cent lower after prices hit a record $2.197 in March.
In the domestic market, prices for Shankar-6 increased to a record of over Rs 63,000 a candy in March before beginning to slide on poor demand and consumption.
Meanwhile, the current cotton crop is reported to be excellent. Mr Patel and Mr Poppat said that the crop development was good.
The Cotton Advisory Board, which has representation from the trade, farmers, exporters, textile and agriculture ministry besides the industry, has pegged this season's crop at a record 355 lakh bales against last season's 325 lakh bales. The higher production has been aided by the acreage under the crop rising to 121 lakh hectares from 111 lakh hectares last year.The Agriculture Ministry sees the crop at over 360 lakh bales, while a section of exporters, too, is projecting the crop at around 365 lakh bales.
Meanwhile, exporters and traders said that rumours of the Centre extending a five per cent subsidy for cotton exports.
“They are mere rumours,” said Mr Poppat.
“We have not heard anything of that sort,” said Mr Patel.
In some trade circles, the rise in cotton prices, particularly on Wednesday, was attributed to the rumours of export subsidy.
Exporters said with prospects looking good, subsidy was unlikely.