MUMBAI (Commoditiescontrol) – Cotton prices in the domestic market has surged over 45 percent in last three and half month amid strong fundamentals and bullish cues from the international market.
But now the industry players are uncertain about future trend, whether buy, sell or hold the commodity as the new crop is expected from September-end, though the sowing is still lagging in many states and area contraction most likely, but better yield amid favorable weather likely to offset acreage losses.
However still there is still around two month left for the harvest season to start and any natural calamities or pest infestations could hurt crop and hence any price and output prediction could be done only by October-November.
Meanwhile there are consensus among the industry to reduce consumption of cotton as mills are incurring huge losses of around Rs 25-30/kg on yarn due to higher cotton prices.
According to industry experts the consumption of cotton is likely to shrink by 15-30 percent during July-August-September as many spinning mills have declared 1-3 holiday in a week and further reducing production diverting towards man-made fibres.
A cotton trade experts said “Actual demand for cotton at present is poor as buyers are uncertain about future trend and buying only in very very limited quantity rather than in bulk.”
If we analyze the monthly consumption trend of July-August-September of last five year (2011-2015) average is somewhere around 23.19 lakh bales, and if we consider that domestic mills reduce the consumption between 15-30 than the monthly cotton requirement will drop to 16-19 lakh bales, which means that country will require 48-57 lakh bales of cotton for remaining season.
Now after the demand, here we comes on supply. The domestic mills in the country are likely holding cotton of about 1 to 1-1/2 month, which is likely to be around 20-30 lakh bales, while unsold stocks with CCI, private traders and MNC’s is projected to be around 20 lakh bales and 15 lakh bales of cotton to be arrived from various foreign destinations will take to the total availability at 55-65 lakh bales.
Now the demand-supply equation somewhat look like at comfortable position, hence cotton prices likely to face resistance on every rise from hereon with new crop to hit the market soon.
Also we should not forget that India competitiveness in the international market has turned negative due to higher cotton prices and hence textile and garment exports likely to hurt and China, which is sitting with huge cotton stockpile will be benefited.
Key Highlight Points
# Demand For Cotton Weak At Higher Level
# Disparity In Yarn Results Lower Consumption
# Summer Crop Of Around 2.5 Lakh Bales To Hit Early September
# New Crop Sowing Picks Up; Weather Favorable For Better Yield
# India Textile/Garment Exports Likely To Be Hurt By Higher Price
# Domestic Mills Reduce Cotton Consumption
# U.S Crop Harvest Likely From August To Pressure Prices As Well
Conclusion
Cotton May Trade Firm, But There Is Question Mark About Sustainability. Prices Correction Most Likely After Recent Parabolic Rise.
(By Commoditiescontrol Bureau; +91-22-40015533)
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