Lull In India's Cotton Exports Despite Narrowing Price Spread

MUMBAI (Commoditiescontrol) - While the expectations of the trade agreement between the US and China have pushed up the prices of cotton this season in the global market, its prices have fallen about 10% this season in the domestic market amid expectations of bumper production. In this case, the difference between the prices in domestic and global markets has reduced.

It is believed that in the coming days, the ongoing premium in cotton prices in the domestic market may turn into a discount, which is necessary for the health of domestic cotton and textile market. But if this does not happen then the government may have to interfere in the market on a large scale.

Significantly, due to high MSP at the beginning of the season, the price of cotton in the domestic market was much higher than the global market which has come down by around 10% from 68 cents to around 68-69 cents/pound in the last one and a half months. Whereas the global market has moved up to 65 cents on the expectation of increasing demand from China. In this way, the difference between the two is reduced considerably. However, despite this much, neither cotton is being exported from India nor the textile and cotton industry has got any relief.

Even on the chart, the difference between MCX and ICE cotton has reduced considerably. In mid-2014, the spread of both was in the range of 0.87x-1.20x. But it has decreased in the last few weeks and currently it is around 1.11 and it is expected to come in the range of 0.95x - 1.00x soon. (See spread chart-1 of MCX and ICE cotton below) The chart is a clear indication that domestic cotton may see further decline. (See MCX Cotton Long Term Chart-2) i.e. the global market is going up gradually and the domestic market is going down. Exporters and industry also believe that a fall in prices is necessary for the betterment of the domestic market.

In a special conversation with Commoditiescontrol.com, MC Rawat, secretary of the Madhya Pradesh Textile Mill Association, said, "Demand from the global market is low due to high prices in the domestic market. In the absence of demand, mills are operating in very low capacity which is also impacting the demand for cotton in the market”. He also expected the situation to improve in the next 5-6 months. But before that the textile industry has been demanding export concession from the government, ease of GST refund and cheap electricity.

According to the Textile Export Promotion Council, there has been a decline of 39% in cotton yarn exports and 23.5% in textile exports in April-September. Cotton exports have fallen by 75% during this period.

Pradeep Jain, president of the Khandesh Ginners Association in Maharashtra, believes, "There is absolutely no demand for cotton from MNCs for export in the market, unless the price in the domestic market will go down compared to the global market, it is difficult to export".

According to the Cotton Association of India, there is an estimated bumper production of 354.5 lakh bales of cotton in the country this year. In such a situation, there have been suggestions from traders to introduce Bhavantara Yojana.