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Market Monitor | January 2015

Pinning hopes on cotton price stability

Cotton Corporation of India (CCI) has sold 1,100 bales on the first day of auction creating international curiosity very recently.
According to an official notification, CCI initiated electronic auction on January 27th to sell an initial quantity of 5,100 bales (170 kg each) at a price higher than the market price from its Adilabad, Warangal and Guntur offices. The initial variety to be disposed is Bunny Brahma (31mm in length), which is normally suited for fine counts.

To capture the Indian cotton situation correctly at this point of time, this scribe spoke to a general manager of a leading 100% cotton spinning mill in South India who is in-charge of cotton procurement, via phone this morning. According to that well-informed source, who wanted to remain anonymous, the main consideration for spinners and cotton merchants is to have the price stability. The excess cotton production in India and the recent China import policy has brought enormous price instability this time, compared to the previous year.

The move by CCI to release cotton from its stock should serve the purpose of stabilising the cotton price, while the current market price in India is below what the CCI is selling since January 27th and its earlier procurement cost, this season. The expert is of the opinion that CCI would have initiated the initial sell, not only to generate liquidity for its additional procurement, but also to ensure higher prices to the farmers when the Indian market price is trading low.

With regard to the cotton production, India´s production for this cotton season is estimated to be 40 million bales (170 kg each), which is higher than last year´s production. During the months of November´ 14 to January ´15, 70% of cotton crop, particularly in rain fed areas would have arrived, showing that India is on track to have bumper crop. While this is the situation with regard to production, so far China has not imported cotton from India leading to stock-piling and decline in market price in India. Last year, India exported a good quantity of its production to China.

The decline in the market price is not favorable to both producers and spinners, which should have prompted CCI to initiate its first phase of selling for this season said the source. The MCU-5 variety (30 mm length), which is suited for fine counts was selling at a spot price of about Rs 32,500 (US$ 529.40) per candy (356 kg) on January 27th, when CCI announced its auction. Subsequently, the spot price of this variety has shown some increase, and as of today in Warangal market, the price for MCU-5 is Rs 34,000 (US$ 553.83) per candy. Last year, the price went up as high as Rs 48,000 (US$ 781.88) per candy.

Furthermore, the current cotton price is not suitable for spinners as it leads to lower yarn prices, while the cost of labour and power is increasing in India. Currently, a 60s Ne cotton yarn sells for Rs 250 (US$ 4.07) per kilogram, while the price that is sustainable for the Indian spinning industry is around Rs 275 (US$ 4.47) per kilogram, stated the source from South India. Around the same period last year, 60s Ne cotton yarn was about Rs 295 (US$ 4.80) per kilogram. Additionally, the technical expert suggested that with the oil price trading in mid $40 for a barrel, it would put pressure on the polyester industry to reduce its price, further aggravating the situation in the cotton industry. Indian polyester price is expected to further go down South to Rs 80 (US$1.30) per kilogram sometime next week, while this price was Rs 110 (US$ 1.79) per kilogram last year. Volatility in polyester price will also influence the global cotton price.

From the Indian spinning industry point of view , this latest move by CCI to dispose 5,100 bales should lead to softening the volatility and support spinners to realize adequate value for the yarns. However, the current policy adopted by CCI to sell its cotton is also not well r

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