Indian cotton prices under pressure due to lockdown and fears of drop in consumption: CAI

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Published: May 6, 2020 3:20:10 AM

Indian cotton prices have come down by 12-15% due to the ongoing lockdown and fears that the country’s cotton consumption will reduce, resulting in more carry-forward stocks by September 2020, officials of the Cotton Association of India (CAI) said on Tuesday.

Indian cotton prices are currently the lowest in the world at Rs 33,000-36,000 per candy, according to industry sources.

Indian cotton prices have come down by 12-15% due to the ongoing lockdown and fears that the country’s cotton consumption will reduce, resulting in more carry-forward stocks by September 2020, officials of the Cotton Association of India (CAI) said on Tuesday. Indian cotton prices are currently the lowest in the world at Rs 33,000-36,000 per candy, according to industry sources.

To overcome this issue and reduce stocks, CAI has written to Prime Minister Narendra Modi to reduce the duty drawback of 5-8% for export of cotton and cotton yarn, Atul Ganatra, president, CAI told FE. “If this relief is given, the country can do huge export of cotton so our carry-forward stocks for September will reduce and not pile up. Our cotton market will also stabilise and the benefit will go to India’s cotton-growing farmers and entire trade will get work. The government will earn foreign exchange if the export of cotton and cotton fibre picks up,” he observed.

According to Ganatra, the market has come down since spinning mills were shut during the lockdown resulting in a drop of 30-35 lakh bales in consumption and at the same time, CAI’s pressing figure estimates may also come down since ginning units were shut for 45-60 days and labourers have gone home. “There is a drop in consumption as well as pressing. Moreover, in the last couple of days, merchants and traders have been going in for forward sales and taking short positions on MCX on fears of a US-China trade war,” he explained.

Ganatra said Indian cotton prices at this moment are 10-12% lower than world market. “Today if we go in for imports of cotton, the US market is priced around 67 cents, i.e., around Rs 39,000 per candy and our cotton is priced between Rs 33,000 and Rs 36,000 per candy. The rate is already discounted by 10-12%. Once the lockdown is lifted, demand will improve from the Indian spinning mills and there is a huge demand for Indian cotton from Bangladesh, Vietnam and China,” the CAI president said, adding that China has already purchased 4-5 lakh bales from the US at Rs 39,000 per candy in last one week time and Indian cotton is available at a more attractive price.

Currently, some queries have been coming in from Bangladesh, Vietnam and China, and once the lockdown is over, more queries will pour in, he added.

Ganatra felt that imports are currently not feasible because Indian prices are currently the lowest in the world while the prices across the world market at Rs 33,000-36,000 per candy. CAI had estimated import targets at 25 lakh bales of which only 12 lakh bales has happened so far, he said.

On the export front, he said their target of exports was 42 lakh bales up to September 2020. So far, around 32 lakh bales have been shipped which leaves another 10 lakh bales to be shipped in the next five months from May to September. “If the prices remain at this level, we can easily achieve the target of exports. There is more pressure on the rupee, which has depreciated to Rs 76 a dollar from Rs 69 a dollar at the start of the lockdown making export more attractive and imports expensive.”

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