Indian cotton prices spike as rains across the country affect arrivals

Cotton prices in the Indian domestic market have gained 3-9 per cent since the beginning of this month as arrivals have declined to a 20-year low since the beginning of this month due to rains in many parts of the country. 

Prices are, however, expected to moderate and head lower once arrivals gather momentum in the current season (October 2022-September 2023), trade and industry officials say.

Lowest since 2003

According to the Agmarknet portal, a unit of the Ministry of Agriculture, cotton arrivals during October 1-10 were 61,572 tonnes compared with 1.12 lakh tonnes a year ago. Arrivals are the lowest since 2003 when 53,221 tonnes arrived during the period.

“Arrivals are currently around 30,000-35,000 bales (170 kg) against the normal 50,000 bales due to rains. Once the weather clears up, arrivals will increase and prices will head lower,” said Anand Popat, a trader based in Rajkot, Gujarat. 

Agmarknet data showed that arrivals throughout last week were lower than 10,000 tonnes, though they increased on Monday to 13,902 tonnes. 

Prices for the Shankar-6 variety, the benchmark for exports, are currently ruling at ₹71,500 a candy (356 kg) against ₹69,000 on September 30. Raw cotton (kapas) prices at Rajkot agricultural produce marketing committee (APMC) yard in Gujarat have increased to ₹8,800 a quintal from ₹8,250 during the period.

Global price too rise

The average weighted price of cotton across various mandis is currently ₹8,625 a quintal compared with ₹7,851 on September 30. This is against the minimum support price of ₹6,080 for medium staple cotton and ₹6,380 for long staple cotton. Indian cotton crop is primarily medium staple. 

During this period, cotton prices on the InterContinental Exchange (ICE), New York, have gained 5 per cent at 85.64 cents a pound (₹55,800 a candy) for December futures. On the Multi Commodity Exchange, cotton December futures dropped by ₹640 per bale on Tuesday to ₹30,010 (₹62,844 a candy). 

“Prices are coming down now (compared with ₹1 lakh a candy in May) and we expect it to be in the ₹60,000 range per candy once arrivals peak in India,” said Prabhu Dhamodharan, Convenor, Indian Texpreneurs Federation (ITF).  

Building inventory

“There is some demand now for cotton as mills are trying to build inventories after having shut for sometime. How long can they keep their units closed. Arrivals will increase in due course of time,” Popat said.

The Rajkot-based trader said cotton production this year is expected to be at least 375 lakh bales, provided the weather remains good. “So far, there are no reports of any major damage to the crop,” he said. The cotton production estimate for the current season is against 312 lakh bales last season. In view of the natural fibre’s prices ruling at record high last season, the area under cotton has increased 7.5 per cent this year to 127.50 lakh hectares. 

ITF’s Dhamodharan said the textile sector had a painful September quarter in which utilisation and margins were low. “Cotton prices were artificially higher last season,” he said. 

AP units shutting down

According to K Venkatachalam, Chief Advisor, Tamilnadu Spinning Mills Association (TASMA), cotton offtake is lower as quite a few mills units in Andhra Pradesh are shutting from today.  “Post-Diwali, spinning mills in Tamil Nadu may shut as there is no demand for yarn. How long can they operate without demand?” he wondered. 

The spike in cotton price is secondary and the primary issue is low domestic and global demand, he said.

Dhamodharan said the retail demand in the US had not contracted much, though inventory re-adjustment was taking place there. “Earlier, it took 80 days for consignments to reach the US from China. Now, it is down to 40 days. So, a corresponding adjustment in inventories is taking palace,” he said. 

On the other hand, there is demand contraction in Europe and it will take 2-3 quarters for it to recover completely, he said. 

Popat said mills demand in the country will take another two months to pick up.

No chasing cotton

Dhamodharan said sales in domestic market are robust across all products as this is the first non-Covid festive season since 2019.  “Post-Diwali, things will change in terms of demand,” he said. 

Currently, spinning mills are running at 40-50 per capacity and they may not chase cotton and will monitor cash flow to decide on stepping up their utilisation . “They will cut utilisation when demand drops and raise when it increases,” the ITF convenor said. 

“We expect calibrated demand in the current quarter, particularly post Diwali . We are looking at normal demand in the first quarter of 2023,” he said. 

Popat concurred with the view saying the all supply side factors look bullish since there is a shortage of stocks globally. “But fears of recession, inflation and geo-political risks are dampeners,” he said.

Dhamodharan said if India focuses on the US, opportunities are immense to utilise the China-plus-one chances as “we have a level-playing field in terms of similar duty structure”.

Popat said he foresaw a volatile market this season with speculators and investment funds playing a big role in the market movement.