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Cotton prices fall as new crops reach local markets; prices are likely to soften further

1 Oct 2022 5:01 pm
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Mumbai, 1 OCT (Commoditiescontrol): Cotton prices have eased more than 35% from the peak level of May, and are likely to soften further as new crop arrival have started reaching local markets of the key producing states. Also, nearly three-fold jump in India's cotton yarn imports during marketing year (MY21-22), is expected to apply pressure on the prices of natural fiber.

As per traders, new cotton arrival have already hit at 30,000 bales (1 bale=170 kg) per day at market yards and as they are expected to gather pace to reach peak levels by mid-October, the prices are likely to take a big hit.

Cotton prices may nosedive in the near-term owing to low mills demand, robust harvest prospect and weak trend in global cotton prices.

Locally, cotton prices are suffering from dual impact. Millers/weavers have resorted to imports since they faced danger of rendering their capacity idle. They preferred imported cotton yarn that was available at Rs 30/kg cheaper to domestically produced yarns, a local source informed.

Interestingly, the country recorded cotton yarn imports for the first time ever. Ironically, yarn exports have also come down sharply. It is estimated that the yarn exports have nearly halved owing to weak demand. Hence, Millers prefer to wait for the prices to ease further.

At agricultural produce marketing committee (APMC) yards in States such as Haryana, Rajasthan, Punjab and Gujarat the modal price (the rate at which most trades occur) have started weakening.

In some markets such as Halvad in Gujarat, the modal prices have already slipped well below the level witnessed in the past weeks. Yet, the current market prices are higher than the minimum support price of Rs 6,380 for long-staple cotton and Rs 6,080 for medium staple for the 2022-23 marketing year starting October 1.

Prices have come down by about 35% in the past two months from around Rs 1.1 lakh per candy (356 kg) to around Rs 72,000-73,000 levels, traders informed. However, there is no demand from the spinning mills. The movement of yarn and finished products is sluggish due to the slow demand from both domestic and overseas buyers, they added.

Currently, prices of Shankar-6 ginned cotton, the benchmark for exports, are Rs 69,250 a candy (356 kg). However, they are still at a premium to the New York cotton. Benchmark cotton futures on InterContinental Exchange, New York, are currently quoted at 85.32 cents a pound (Rs 56,325 a candy). On Multi Commodity Exchange, November cotton contracts are currently quoted at Rs 29,400 (Rs 61,567 a candy).

Although, it is difficult to predict prices, the expectation is that there is more likelihood of the prices falling as arrivals peak by mid-October. Spinning mills are in no mood to buy cotton, while some mills have shut down due to raw material shortage. This is expected to curtail mill demand.

At crop front, the farmers have expanded the cotton area by 9% to 128 lakh hectares. According to the government’s first advance estimates. the production is seen higher at 341.90 lakh bales this crop year (July 2022-June 2023) against 312.03 lakh bales last crop year.

The latest spell of rains in parts of Telangana, Andhra and Karnataka is seen aiding the crop. However, rain in North India could impact the crop in some parts.

Some experts continue to stay optimistic about prices. A textile industry official said prices of kapas (raw cotton) may not drop below Rs 8,000 a quintal given the tight supply situation. Besides, the carryover stocks are low.

Due to the low carryover stocks, the Tamil Nadu Spinning Association (TASMA) has urged the Centre to ask the Cotton Corporation of India (CCI) to procure cotton.

TASMA presented a memorandum to BJP President JP Nadda in this regard two weeks ago, besides seeking an indefinite extension of duty-free import of cotton. But the CCI is unlikely to enter the market unless prices drop below the MSP.

Multinationals such as Viterra, a Glencore company, and Louis Dreyfus have lowered the forward quotes for delivery from November onwards. The MNCs are quoting Rs 61,500-63,300 for various staple lengths for delivery during November-April. The quotes are lower by at least 13% from the prevailing prices, indicating that prices could come under pressure.

According to traders, current cotton stocks with industry and others is 21.50 lakh bales.

In an order recently, the Textiles Commissioner said the CCI will be the nodal agency for undertaking price support operations and that the MSP will be effective from October 1.

CCI official expects the farmers to get rates higher than the MSP, and hence they may not require any MSP intervention by CCI. However, to meet any such eventualities, CCI has fully geared up its infrastructure to ensure that no farmer is put in any distress.

(By Commoditiescontrol Bureau: +91-22-40015505)

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