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Web Exclusive | July 2016

Cotton turns sticky again!

The Southern India Mills’ Association based in Coimbatore has called for calmness among spinners in India in the wake of the downward cotton production estimate. To offset the abnormal rise in price in domestic markets due to speculation, the Southern India Mills’ Association’s (SIMA) Chairman M Senthilkumar has suggested larger mills to opt for imports to normalise price situation in India.

On July 13, India’s Cotton Advisory Board revised this year’s production to be 33.8 million bales (170 kg each). This estimate is 1.4 million bales less than the February estimate and substantially lower than the production in the past two seasons.

SIMA in reacting to the downward estimate has requested mills not to panic and resort to rush purchase as the prices have risen abnormally high by about 44 per cent since April. According to Senthilkumar, price rise has been due to speculation that acreage would drop but the area under production will be good enough for a comfortable supply situation.

According to SIMA, drastic increase in price in the domestic market will negatively impact the Indian textile sector as the international cotton price is over 10 percentage lower than Indian price levels. The domestic cotton price is making the situation uncompetitive for the Indian spinning and textile sectors, and would negatively impact the export of textile goods.

Analysing the cotton price situation from spinners point of view, Senthilkumar pointed out that while clean cotton price has increased over Rs 40 per kg, yarn price for 40 Ne count has disproportionately risen only by Rs 6 to Rs 23 per kg, in the past three months.

In order to provide a stable price situation, SIMA has appealed to the Indian Government to consider ‘Cotton Price Stabilisation Scheme’. It has also requested the government for additional support programs such as 5 per cent interest subvention for cotton purchase during the peak season (October to April), increasing credit limit from three months to nine months and reducing the margin money requirement from 25 per cent to 10 per cent.

With the ICE December contract at 74 cents and significant reduction estimate of India’s production, all eyes are on what will be the actual production in the United States this fall.

(By: Seshadri Ramkumar, Texas Tech University, USA)

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