Industry experts say buying will increase as prices of fiber and its yarn reach lower levels
Cotton prices have declined by about 7.5 per cent in the last month due to its reduced movement and weak demand for yarn. However, industry experts say that once the prices of natural fibers stabilise, the industry may be reassured and return to purchases.
“Currently, the situation is bad. There is no movement in cotton bales and yarn due to low demand. Mills are cutting production due to low yarn prices and low demand,” said Ramanuja Das Bubb, a sourcing agent for multinational companies based in Raichur, Karnataka.
“Ginning mills (which process raw cotton into lint or cotton bales) have orders for a month. After this they have not received orders yet. Demand is sluggish and yarn exports have slowed down,” said Anand Popat, a Rajkot-based trader of cotton, yarn and cotton waste.
"Effect of Export"
“Global demand has come down and its exports have been affected. The domestic market is unable to absorb the material sent to the domestic market from the export market, said Ravi Sam, president of the Southern India Mills Association (SIMA).
Indian Texpreneurs Federation (ITF) convenor Prabhu Dhamodharan said, "The reports are indicating lower inventories of cotton yarn in all major markets including China on year-on-year and historical average basis."
Cotton prices are currently at ₹55,500-56,000 per candy (356 kg), down from ₹60,000 a month ago. The model price for cotton (raw cotton) at the Rajkot Agricultural Produce Marketing Committee yard (the rate at which most of the trading takes place) is ₹7,100 per quintal – down ₹200 from earlier this month.
On the Multi Commodity Exchange, the August cotton contract was quoted at ₹55,720 per candy. On the Intercontinental Exchange, New York, the July contracts were bidding at 79.63 US cents (around ₹53,000 per candy).
"discount for yarn"
According to SIMA's Sam, textile exports are expected to decline by 14 per cent and textile shipments by 23 per cent in FY2022-23. Exports of yarn, fabric and made-ups fell 26.7 per cent.
He said the declining trend continued in May and overall textile exports declined by 12 per cent.
“There is no movement of yarn despite ₹30/kg discount being provided by spinning mills especially to hosiery makers. Mills suffer a loss of ₹15-20 per kg,'' said the SIMA president. The Ukraine war and the economic situation in the US and Europe have complicated the situation.
“Spinning mills in North India have stock of yarn for 2 months. Yarn speed is very slow,” said Anand Popat.
Bounce from July?
“The current market rates will force every player to incur losses. No one is willing to sell cotton or yarn at low prices,” said Das Bub.
ITF's Dhamodaran, however, seemed optimistic. “The current fall in yarn prices will encourage some steady buying from international buyers. We are hopeful that with the stabilization of cotton prices, our monthly export numbers will improve further from July onwards,'' he said.
Sam said relief measures such as allowing imports without duty and concluding free trade agreements with the European Union and the United Kingdom would help the sector re-emerge.
Das Bub said, "Cotton arrivals remain at 65,000-70,000 bales per day and prices are falling to the new MSP rate (₹6,620 per quintal)."
Cotton arrivals have been unusually high since April this year - a low arrival season - as farmers held their produce in anticipation of higher prices.
"Matter of time"
Dhamodharan said yarn stocks with domestic buyers are at low levels and they are finding that the current prices are attractive and are showing interest in normal buying.
"Cotton price stability in a particular range for two more weeks will instill more confidence and trade may return to normal soon," he added.
Export bookings are fast but price is a major factor. The only issue is that the prices should be consistent. "That is the factor we need to keep an eye on," said the ITF convenor.
"It is only a matter of time before demand picks up, provided the Center has the right policies in place," said the SIMA president.
"sowing blow"
Das Bub said the delayed monsoon has affected cotton cultivation as sowing has not yet started in the southern states. However, the area has increased in Saurashtra, Gujarat apart from Rajasthan, Haryana and Punjab.
According to the agriculture ministry, cotton cultivation is down 14.2 per cent to 28.02 lakh hectares as of June 23.
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