NEW DELHI: India may continue to witness high cotton prices beyond mid-December, even after the arrival of new crops and irrespective of changes in global prices.
Traders say prices could rise up to. 43,000/candy, weighing 356 kgs, since November arrivals are expected to be limited because of exports. High global prices are keeping Indian cotton farmers and the farm ministry bullish on export sentiments.
During just 10 days to October 11, the textile commissioner’s office received applications for 5.5 million bales of exports, forcing the government to down shutters in a hurry.
Analysts expect that while prices could dip marginally after the US and Indian harvests come in, they would remain above $1/lb for several months on the back of unusually low stocks in the world market.
On Wednesday, New York December futures contract fell over 3% to $1.026/lb after the dollar rallied following China's surprise decision to increase interest rates and cool demand, encouraging investors to sell holdings of cotton. China is the world’s biggest cotton importer.
US cotton prices had hit highest level since the American Civil War on October 15, touching $1.198 on ICE Futures US.
At home, too, lower-than-average stocks to consumption ratio will likely keep prices high irrespective of the world development. “Any drop in prices after fresh arrivals in November will only be marginal,” said a Mumbai-based trader, adding that the 8% growth in domestic consumption and permitted exports of 5.5 million bales will keep prices firm.
India has allowed limited export of cotton, which will start on November 1 and must be completed by December 15, following a bumper crop. Up to Monday, October 18, 3.8 million bales (170 kg each) of cotton has already been registered for exports, according to textile commissioner.
Cotton prices in domestic markets are ruling at around . 41,000/candy, rising . 1,000 a candy over the weekend as mills began purchases.
Sections of the industry, including trade body Confederation of Indian Textile Industries (CITI), have criticised government’s view of an “exportable surplus,” warning that domestic cotton security would be endangered.
The industry has said that the carryover cotton from the last marketing season (October 2009 - September 2010) would run out by December 15, boosting local cotton prices.
Last month, CITI wrote to the Prime Minister seeking delay in exports till January. The industry body also wants the government to keep the exports staggered.
Textiles secretary Rita Menon ruled out any possibility of export quota being cut, which is sure to keep prices firm. Domestic prices rose rapidly to . 41000/candy in August after exports were opened up in August.
After taking stock of the flood impact this summer, the Centre chose to delay the date for starting exports by a month. That caused prices to fall to . 36,000/candy but they gained again once export registration started.
In the local market, the marketing season for cotton has been delayed by a month which is straining supplies and keeping prices firm. Mills have already hiked prices by 10-15 %.
Domestic consumption of cotton is pegged at 270 lakh bales while production in 2010-11 is estimated at 325 lakh bales. Exports touched a record 8.3 m bales in 2009-10 , forcing prices to shoot up in the home market.
