MUMBAI (Commoditiescontrol) - Cotton prices have continued to rally since mid-March. Shankar 6 (29mm), the bench mark variety from Gujarat that quoted at around 32,200 per candy is now quoting 37% higher to 44,000! The current rally is similar to 2012-13 when the monthly average prices increased from 32,700 per candy to 48,000 per candy by the end of the season. The seasonal high was made at around 49,000! However the stock to use ratio analysis till date shows that the season could end similar to the year 2013-14 when the prices made seasonal high of 43,200 and gradually declined to around 40,000 on average from July to September of 2013. Where will the prices go is anybody’s guess.
Let us look at the fundamentals from here on. Assuming that the current crop is in the region of 330 to 340 lakh bales, the export numbers that are already out at around 66-67 lakh bales. Consumption numbers shared by the ministry of Textile shows that the total consumption for the season till May 2016 is running behind by around 2% year on year at around 174 lakh bales. Imports that are already know in the season so far at around 5-6 lakh bales. The main point of debate as always is the carry in from previous season. Assuming that most of the cotton sold be CCI in last two quarters (around 74 lakh bales) just changed hands and was neither consumed or exported, the opening stocks of the 2015-16 season was around 75-78 lakh bales. Based on these calculations July opening stocks are expected to be around 115 lakh bales. Similar to two comparable seasons being discussed here.
Going forward we need to see if the prices will draw influence from the supply factors or the demand factor. Mid July onwards imports are expected to pick up. The way prices have run up the imports could very well be around 8 lakh bales in the rest of the months, around 2.7 lakh bales every month in last quarter of current season. No great consumption patterns are emerging. If at all, because of the improved domestic availability of cotton for mills in China, has further reduced the potential of cotton yarn exports to China from all over the world. Indian textile sector is getting lot of policy attention, but all that could potentially materialise would be in future only. Cotton exports have dropped down to minimum, and will continue to go down to zero in next quarter.
Revision to higher imports and lower exports from here onwards changes the scenario completely. With the changed scenario the total exports would now work out to be 66-67 lakh bales, and imports to around 20 lakh bales. Consumption would be marginally lower in the range of 304-306 lakh bales. The carry forward in that case could very well be in the region of 56 lakh bales or more. This would be equivalent to the consumption of more than two months.
Other important factor that will influence going ahead would be the sowing reports as well as the global events. Sowing numbers are well behind the last year comparable numbers. That was expected. Last year the monsoon was 2 weeks ahead of time all over the country. This year we lagged by one week in most parts. Hence the acreage lag is of cumulative 3 weeks. The numbers will certainly improve going forward. Northern Gujarat remains a matter of worry as the monsoon there is expected to be scanty going forward, will give little scope to cotton farmers. The acreage loss year on year is going to be certain in some areas because of the pest attack last year. However the current rally could also see some last minute changes in sowing intention by the farmers. The yields will certainly be better this year. Hence how big the next crop will be over last year is the question now.
Lastly globally too the production estimates are getting adjusted higher. Aggressive Chinese auctions will increase the cotton availability in the world outside China. It could also further slow down the boom in the cotton yarn industry world over as Chinese start using homemade cotton yarn.
All and all as you move ahead the supply numbers looks to overpower the demand factors. Pace of imports, crop development and global prices increases the uncertainty in the immediate term, as the prices are unlikely to collapse immediately. But medium term scenario looks very much as though the prices could peak sooner than expected.
Bales = 170Kg
Candy = 356Kg
(By Commoditiescontrol Bureau; +91-22-40015533)
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