Textiles mills look to domestic cotton as imports turn dear

Aarti Shetty

Mumbai, Dec 2: This is a case of sheer role-reversal. Till recently, imported cotton was most preferred by the cotton consuming mills here. However, with around 29 per cent jump in almost 30-year low cotton prices, the mills now find imported cotton uneconomical.

Accordingly, increasing number of cotton mills now seem to prefer to use domestic cotton, which traders say is currently 12 per cent cheaper than imported cotton.

Says Brijesh Sampat of Shree Sanjay Trading company, “At the most domestic cotton will continue to find favour for the next two months, until the pressure of arrivals starts easing”.

With good arrivals of the cotton crop estimated at around 80,000 bales hitting the market since October this year, prices of domestic cotton began to slide prompting local mills to buy their cotton from Indian markets.

According to the East India Cotton Association (Eica), this year the crop estimate is roughly around 150 lakh bales, higher from last year’s output of 138.75 lakh bales.

On the other hand, international cotton prices which were on a continuous downslide from the past 7-8 months and had reached a 30-year low of 29 cents per lb, have recently began firming up by around 10 cents during the last fortnight.

On the New York Cotton Exchange (NYCE), on October 26, the March 02 delivery contracts were quoted at 30.55 cents per lb, which is currently being quoted at 39.27 cents per lb. Further, the Cotlook Index A too registered a jump of around 22 per cent during the same period to US 42.70 cents per lb till November 30.

It is not surprising then, that preference of Indian mills is tilting towards domestic cotton. Imported cotton is currently around Rs 1,765 more expensive than the domestic variety.

For instance, imported 118 Middling grade cotton is currently being quoted at around Rs 16,965 CIF per candy (45 US cents per lb).
In comparison, the average spot price of the domestic Shankar-4 variety of cotton, which is on par with the 118 middling grade is Rs 15,200 per candy. However, not very long ago the opposite was prevalent. Mills were preferring imported cotton as imports were around Rs 2,428 cheaper than their domestic counterparts. Around mid-November, the imported 118 middling grade cotton was quoted at Rs 13, 572 CIF per candy (36 US cents per lb), while the average spot price of the Shankar-4 variety was Rs 16,000 per candy.

But the cotton trade is not very optimistic about domestic cotton holding its sway in the Indian markets. Imports will continue to dominate the needs of the mills, according to industry sources.

Lastly, according to Mr Sampat, cotton prices of most varieties are currently hovering around the Agriculture Pricing Commission (APC) price lines of cotton and are unlikely to go down any further.
Once the quantum of arrivals start lowering, prices of domestic cotton will once again begin to pick up.