Sectoral stress: Cotton prices likely to stay firm amid tight supply

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Published: August 14, 2019 12:43:24 AM

CAI has pegged expected imports of cotton shipments to India at 31 lakh bales till September 30, but actual imports shipments as per USDA report will be only 19 lakh bales to India up to September 30.

Domestic cotton markets have been under downward pressure as lower international prices render Indian cotton exports less attractive. Domestic cotton markets have been under downward pressure as lower international prices render Indian cotton exports less attractive.

Domestic cotton prices are likely to remain firm in the coming months on tight supply, senior traders in the market have said. Spot prices of cotton that were Rs 19,530 per bale on August 5 on MCX, which jumped to Rs 20,330 per bale on August 23, recovering due to a shortage of cotton in India.

Senior industry people pointed out that the balance sheet will remain tight in near term. Due to small crop size and tight balance sheet, stock estimated by the crop committee of the Cotton Association of India (CAI) is 15 lakh bales (170 kg each) on September 30, 2019.

Imports from October 1,2018 to July 31, 2019, which have reached Indian ports, are estimated at 15.28 lakh bales while balance 15.72 lakh bales are estimated to arrive during the period from August 1, 2019 to September 30, 2019 (total imports estimated during the entire season are 31 lakh bales).

Export shipments from October 1, 2018 to July 31, 2019, which have already been shipped, are estimated to be at 44.50 lakh bales while balance 1.50 lakh bales are expected to be shipped during the period from August 1, 2019 to September 30, 2019 (total exports estimated during the entire season are 46 lakh bales).

Arun Seksharia, MD of DD Cotton, said that while MCX cannot be considered the right parameter for cotton prices, the market sentiment is firm and shall continue to remain firm because of the supply position in the market. While some industry people pointed out that Brazilian cotton is unlikely to be available to India until December 2019 since it takes 45-60 days for shipments to reach Indian ports.

Sekhsaria did not agree and revealed that although India has not been dependent on Brazilian cotton, one can expected Brazlilian cotton shipments to India next month onwards. According to some traders, Brazil is expected to ship cotton to China in August and September and these shipments would be available to India only November onwards which means these would reach India by December 2019. According to Sekhsaria, August and September would be crucial for the Indian market and would set the tone for the rest of the season.

CAI has pegged expected imports of cotton shipments to India at 31 lakh bales till September 30, but actual imports shipments as per USDA report will be only 19 lakh bales to India up to September 30.

Traders claim that sluggish exports have dampened sentiments in the markets. India’s 2018-19 export is expected to be around 46 lakh bales, compared with the 69 lakh bales it exported in the 2017-18 season.

Domestic cotton markets have been under downward pressure as lower international prices render Indian cotton exports less attractive. A delegation of Indian cotton ginners that had visited Vietnam as a possible export market found market conditions sluggish and came back without getting much opportunity.

On the other hand, domestic users earlier this year sourced cotton from overseas due to cheaper quotes.Accordingly, exports declined and imports went up. Cotton acreage though, has increased. For yields, August month will be crucial. Any adverse condition in connection with the monsoon may spike volatility in cotton prices. All India cotton sowing by August 2 is reported at 115.15 lakh hectares. Around 95 % of the normal sown area (taken as the last five-year average) had been covered till last week and is 4.8% more than in the same period last year.

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