Domestic cotton prices have risen by 8.4% in the last one month despite the peak arrival season and official estimate of a record harvest this marketing year through September.
This has stoked fears among textile mills that some unscrupulous elements may be hoarding stock to manipulate prices, although traders say the latest rise from a month before is normal and prices have been falling in the past few days.
Prices of the ICS-105 (28 mm) variety hit R42,700 per candy on Saturday, compared with R39,400 a month before, according to data by the Cotton Association Of India (CAI), the traders’ body. Prices have, however, eased from this month’s peak of R43,800 per candy as of January 15.
However, textile industry executives say fundamentals don’t support a price rise in cotton. The International Cotton Advisory Council, in its report last month, said China’s imports of the fibre were forecast to crash by 40% to 3.1 million tonne (mt) in 2013-14, dragging down global trade by 16.8% year-on-year to 16.88 mt. Since China accounts for more than 70% of India’s cotton exports, demand for outbound shipment of the fibre would be lower than a year before, the executives said.
Moreover, India ? world’s second-largest cotton producer as well as supplier ? expects the crop size to hit a record 37.5 million bales in 2013-14, up 3% from last year’s bumper harvest. This means domestic supplies are going to be plentiful this year. “It’s relatively easy for us to pass on higher raw material costs to consumers when fundamentals warrant a price rise in cotton. But it’s difficult for mills to raise product prices when cotton price volatility is stoked by excess speculative activity in the market. We suspect some manipulative elements in the market are behind the latest bout of price rise,? said Prem Malik, chairman of the Confederation of Indian Textile Industry.
The textile industry is apprehensive of a repeat of the 2010-11 situation when cotton prices hit a record in domestic as well as international markets, only to start crashing later that year, as a global shortage of the fibre stoked speculation and resulted in the offloading of stock by some to rake in huge profits.
Consequently, domestic textile mills, which bought cotton at record prices, were caught off-guard after prices suddenly fell significantly from April 2011 on poor demand, as an approaching economic slowdown aggravated into a sustained crisis in the US and EU, which together account for 65% of India’s textile exports. Importers also offered lower prices for textile products after the rate of main raw material tumbled.
CAI chief Dhiren Sheth, however, feels there is no foul play in the latest price rise.