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Tex Matters | August 2015

Cotton king under siege?

Cotton imports by China in June have fallen by 26 per cent already. The see-sawing of prices in major countries including India is causing a lot of anxieties. Chinese prices are under pressure from significant left-over commercial stocks as well as sales of state reserve cotton, kicked off recently. At the same time, purchasing by the Cotton Corporation of India has lifted the price slightly. In short, cotton situation is turning sticky now & then. So B Sripathy, ITJ Coimbatore Representative sought two experts´ comments -one from the raw cotton side and the other from the cotton yarn segment. Here are their opinions:

Prices subdued on fund crunch
The sudden change in China´s policy of cotton imports affected the global cotton trade and put downward pressures on prices. China the largest importer of cotton, built reserves since 2010-11 season and its stocks bulged to the extent of 182 per cent of its annual consumption at the end of 2013-14 season and the country took drastic steps like releasing cotton form stocks, imposing restriction on cotton imports, curtailing the incentives to cotton farmers, etc. China reduced imports to 1.742 MMT in 2014-15, while the previous year import was estimated at 3.075 mt and planned to reduce imports further in the coming years. As the largest importing country reduced import drastically, the season average index in 2014-15 came down to 71 cents per pound, 20 cents lower than previous season average of 91 cents per pound.

On the home front, export demand shrank as China ´ the largest importer of Indian cotton ´ cotton exports were affected badly. Cotton prices were subdued from the beginning of the current season and CCI stepped in and procured cotton as domestic prices ruled below the minimum support price in some of the major cotton growing states. The Corporation procured around 86 lakh bales under the MSP operations, which accounts for 22.3 per cent of the season crop of 385 lakh bales.

Domestic mills could take mileage out of depressed prices, because export demand for cotton yarn also got suppressed affecting their financials. The chart shows declining price behaviour of Cotlook A Index and Indian benchmark variety Shankar-6 from the previous two seasons. In the recent months, with season coming to send prices started gaining strength. On the home front, cotton exports in 2014-15 came down to 1092.99 million kg, 41.37 per cent lower than previous year export of 1,864.13 million kg. Reduced export demand put CCI under pressure to sell its stocks as the current season is coming to end and in the new season prices are likely to be subdued as domestic spinning mills financials have not improved preventing for bulk purchases.

However, on the consumption side, global consumption of cotton has been increasing. This is mainly because of expansion of activities in the textile sector in many countries because of its potential to create large scale employment. Roughly 1,00,000 cotton bales of 170 kg could create employment for 60,000 people.

Increasing population and per capital consumption clearly indicate increasing demand for textile products across the globe. Cotton production in the country in 2015-16 has been anticipated to at the previous year level of 385 lakh bales, with a closing stock of 52 lakh bales total supply has been anticipated to be about 437 lakh bales. Textile mills consumption in 2015-16 is estimated at 320 lakh and the country would have an excess of 117 lakh bales. Of which about 50-60 lakh bales could be exported as cotton supply in the rest of the world is comfortable. At this juncture, large scale investments in the sector is vital to make the ´Make in India´ campaign more vibrant, create more employment, increase export of more value added textile products.

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