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Market Monitor | April 2019

Cotton price likely to rise

The cotton yarn prices have moved in line with the cotton prices, during the period. Further, China is importing more cotton and less yarn from India given the duty differential between the two.

The Cotton Advisory Board (CAB) has revised its cotton output estimate to 321 lakh bales (1 bale = 170 kg) from the previous estimate of 328 lakh bales for cotton season 2019 beginning October 1, 2018 and significantly below last year’s production. This downward revision in production is largely attributed to the water shortage faced by cotton crop in southern states including Telangana, Andhra Pradesh and Karnataka and due to reports that farmers have uprooted their crop forgoing a chance for additional pickings. The Cotton Association of India (CAI) has reduced crop estimates for Gujarat by 1 lakh bales, Maharashtra by 80,000 bales, Telangana by 4 lakh bales, Andhra Pradesh by 1 lakh bales and Karnataka by 75,000 bales, while there has been a marginal uptick of 50,000 bales in Tamil Nadu and 5,000 bales in Odisha. The current year’s output estimate is lower by about 12 per cent y-o-y compared with the output in CS 2018 which stood at 365 lakh bales. The CAI has also maintained the estimated domestic consumption of 316 lakh bales. Consequently, China is expected to regain its tag of the world’s largest producer of cotton which it had lost to India couple of years ago.

CAI has also estimated that imports for the year would be 27 lakh bales, higher by 12 lakh bales compared to the previous year’s import estimated at 15 lakh bales. The exports have also been estimated 47 lakh bales, lower by 22 lakh bales compared to the export of 69 lakh bales estimated during the last year.

Cotton prices have come off last season’s high and are trending lower at around Rs 125 per kg for Shankar-6/Shankar-4 and around Rs 118 for J-34 (Sg) but are still higher y-o-y.

Going forward, cotton price is expected to increase with this further cut in the production estimate. With limited supply in the market, prices are expected to average at about Rs 127 - 130 per kg for CS 2018-19. Further, prices are also expected to be supported by weakened rupee and rising consumption in both the domestic and overseas markets. Prices are also expected to be affected by the ongoing trade talks between US and China. Also with high cotton prices and sluggish domestic and export demand for cotton yarn, the cotton yarn demand is expected to stagnate at the current levels majorly on account of weak demand from China which is world’s largest consumer. However, in medium to long term decrease in demand from China will be offset by improvement in demand from Bangladesh, Pakistan and Vietnam.

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