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CAI Sees Domestic Cotton Consumption Drop 25 Lk Bales Amid Lockdown; Strong Resistance At 60 C For Global Cotton

9 Apr 2020 8:24 am
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Mumbai (Commodities Control) – India is in the midst of a 21 day lockdown to combat Covid-19 outbreak. The nationwide lockdown has shut down textiles mills, spinning mills across the nation along with several other trades.

According to India Ratings and Research (Ind-Ra), the lockdown is likely to impact the textiles sector both in terms of demand and supply and the EBITDA might drop by least 15% in 2020-21 across the industry portfolio.

This shutdown of machinery will lead to slide in cotton consumption to the tune of 25 Lakh bales by spinning mills, said Atul Ganatra, President – Cotton Association Of India (CAI).

In its latest release, CAI is confident of achieving the export target of 42 Lakh bales before end of 2019-20 season, of which 31 lk bales has been achieved already. Ganatra, however, admits that uncertainty lingers w.r.t the duration of this lockdown, i.e if it happens to be extended beyond the anticipated period.

According to the International Cotton Advisory Council (ICAC), COVID-19 is crippling the cotton supply chain.

“Brands and retailers are cancelling orders, leaving spinners and textile manufacturers in Asia and Southeast Asia in a financial crisis,” said the organization, which is an association of cotton producing, consuming and trading countries.

The global cotton production estimate for the 2019/20 season remains unchanged at 25.9 million tons. However, ICAC’s consumption estimate has been revised downward to 24.6 million tons.

India on the other hand is faced with ample cotton supplies and production itself. CAI has maintained its cotton crop forecast for the 2019-20 season at 354.50 lakh bales of 170 kgs each as in the previous estimate. While the total cotton supply estimated by the CAI from October 2019 to March 2020 was 327.53 lakh bales, consists of the arrivals of 283.03 lakh bales up to March 31, imports of 12.50 lakh bales and the opening stock estimated by the CAI at 32 lakh bales.

Apart from the fight against pandemic, India faces the issue of global recession. There is near unanimity on the fact that the global economy is already in a deep and prolonged recession of the kind not witnessed since the Great Depression.

Data emerging from most corners of the globe do not hold out any positives for Indian economy; already in the midst of a slowdown.

While India's dependency on imports is limited, it is dependent on exports and hence, the return of demand from the key markets including the US, the UK, the UAE and China is critical.

Although CAI hopes to have its big buyers- Bangladesh and China, back in the market post the lockdown is lifted. The global apparel brands’ sales and employee layoffs suggest otherwise.

US-based retail giant Macy’s has announced that it would furlough most of its 1,30,000 employees while others such as British luxury giant Burberry have forecast a staggering 70%-80% drop in sales. The UK-based retailer Primark has announced a cancellation of all new orders and Inditex (the owner of popular brand Zara) has already written off some $336 million worth of inventory.

Many global buyers are expected to file for bankruptcy or go into liquidation, which would leave textile manufacturers including those in India with crippling levels of bad debt.

It is certain that closing stores and factories across the country for a period of three weeks will cost India’s textile and apparel industry dearly.

Amid all the weakness, currency depreciation does fall in favour of domestic cotton exporters, however, this opportunity might just slip away if the shutdown is stretched.

Cotton price in overseas markets is struggling to hold 50 cent mark, as Cotton prices dropped to their lowest levels since April 2009 last week. ICE cotton slid about 17% in March as virus fears dragged on the global economy and demand for the fiber.

Meanwhile USDA’s Crop Progress report showed cotton was 7% planted in the 15 states, compared to the 5% from the same week last year.

Experts believe if the USDA reduced export projection for U.S., prices could head southward. The U.S. Department of Agriculture's monthly supply and demand report is due on April 9.

A bounce back in crude oil did lift cotton prices, recently, along with equities and other commodities. However majority of downstream players had to incur inventory losses due to the ongoing geo-political tensions in crude oil which led to the prices declining by more than 40% month-in-month in March 2020.

Experts see demand destruction and supply chain disruptions as real threat to the global cotton trade. Plexus Cotton sees market in a relatively narrow range between the mid-to-high 40s and the lows of 50s.

While CAI’s Atul Ganatra sees overseas cotton in a broader range of 45-60 cents per lb for next three months.

(Commodities Control Bureau)

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