MUMBAI(Commoditiescontrol): A sharp rally in Indian cotton prices of nearly 7-9 percent in one month led to rumors of large export cancellations however in reality the scale of cancellation will remain negligible.
Speaking to various exporters, most of them narrowed down to one conclusion which was “settlement on mutual agreement”. The Indian cotton prices rallied in line with world cotton prices rather than a solitary rally.
Taking the benchmark Gujarat S6(30mm) as the basis of our analysis, price rallied nearly 7.2 percent to last trade at an average price of Rs 41,100/candy(ex-gin) equivalent to 82.50 cent/lb compared to Rs 38,350/candy(75.75 cents/lb) as on December 1.
The reason behind the rally in prices was due to concerns of lower than anticipated Indian cotton production estimates at 350 lakh bales of 170kg each from prior 370 lakh bales due to pink bollworm eating into cotton crop across two major producing states, namely, Maharashtra and Telangana. Trade anticipate production to fall below 330 lakh bales. Further rupee appreciation which touched a 5 month high at 63.67 in early trade on Tuesday has also raised export prices.
The quality issues faced in India post pink bollworm attack has diverted buyers to procure more cotton from US. The shortage in supply from world’s largest cotton producer India has surged US cotton prices nearly touching 80 cents/lb. The benchmark ICE US March futures settled at 78.63 cents/lb on December 29, rallying nearly 7 percent in one month. Similarly, the Cotlook Index A rallied nearly 9 percent to 89.6 cents/lb as of December 29.
This led to rumors of Indian export cancellation of around 5 lakh bales however speaking to various exporters they concluded that sizeable export cancellation is impossible as Indian cotton is still competitive to global cotton prices and ethically exporters could resort to re-negotiation or settlement on mutual agreement.
It is too early to predict sizeable export cancellation as the parties involved in cotton trade would resort to mutual agreement and ethically it is not possible to resort cancellation. Further, Indian cotton has a competitive export basis and buyers would need cotton to satisfy their needs from some other country, if they resort cancelling Indian cotton. However, there is no denying the fact cancellation could be possible but the volume would be negligible, said Chetan Bhojani, Director, Shree Gita Group.
According to reports received from trade sources, “The country has shipped around 13-15 lakh bales of cotton from signed deals of around 22-25 lakh bales during the current season, started from October 2017.” As of November, around 7.11 lakh bales have been shipped as per data collated from reliable sources.
Previously, the Reverse Charge Mechanism(RCM) brought about concerns of slowing exports pace during November which was surprisingly unhindered as shipments rose 21 percent, y/y, to 6.22 lakh bales. (Full Report)
Sizeable export cancellation could be possible from Pakistan due to strict phytosanitary conditions. Around 4 lakh bales have been committed to Pakistan for January-February shipment. Enquiries from other countries have slowed down presently however large cancellation of previously committed deals is not likely possible, said Dharmendra Jain, Partner, DP Cotton.
The rumored large scale export cancellation is not likely to hold true as any ground breaking news is reflected on price however there is no denial over the fact that negligible cancellation could be possible.
(By Commoditiescontrol Bureau; +91-22-40015534)