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Market Monitor | June 2018

Cotton price to rise 8-10%?

The Cotton Advisory Board (CAB) has revised its cotton output estimate to 370 lakh bales (1bale= 170 kg) from the previous estimate of 377 lakh bales for cotton season 2018 beginning October 1, 2017. This downward revision in production is largely attributed to the pink boil-worm Infestation on cotton crops in many states including Maharashtra, Andhra Pradesh and Telangana. The current year’s output estimate is however, still higher by about 6 per cent yoy compared with the output in CS 2017 which stood at 350 lakh bales.

Also, the Cotton Association of India {CA I) has estimated the cotton crop for CS 2018 at 365 lakh bales in their June 2018 estimate. While the domestic consumption has been estimated at about 324 lakh bales, the exports have been estimated at about 70 lakh bales for the current cotton season.

Cotton prices have remained high this season on back of higher prices of substitute man-made fibres due to high crude oil prices. Additionally, the impact of this revision has further supported the prices in the domestic market. Cotton prices increased by about 14 per cent and 20 per cent for two widely used varieties i.e. J-34 and Shankar-6 between October 2017 and June 2018.

Cotton futures for October 2018 on MCX have increased from Rs 20,450 as on May 1, 2018 to Rs 24,110 {+17.9 per cent) as on June 12, 2018. It has marginally declined to Rs 22,720 (•5.8 per cent) as on June 19, 2018. However, the markets have not reacted yet to the cut in cotton production estimate.

Cotton yarn prices

In line with the cotton prices, the cotton yarn prices have also witnessed an increase during the period on back of increased demand from international markets mainly China as a consequence to the trade war with the US along with rupee depreciation. China has imposed a 25 per cent duty on import of cotton from the US and is meeting its demand by increasing imports from India.

Going forward, cotton price is expected to increase with this marginal cut in the production estimate. Also, currently, with crude oil prices on the higher side and uncertainty revolving around future prices, price of man­made fibres has been witnessing an increase, therefore giving room to cotton producers to increase prices. Also, the demand for raw cotton as well as cotton yarn in the international markets, mainly China and Bangladesh, has been on an upward trend and is expected to continue to increase going forward. Cotton price is expected to further increase in the range of 8-10 per cent for the ongoing cotton season led by strong demand from both domestic as well as international markets.

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