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Cotton Prices Drops by more than 20% Globally

Aside from demand erosion, Tarun Satsangi, AGM (Research), Origo e-Mandi, believes that the firm US dollar outlook, global recessionary fears, and a better crop outlook will lead to lower prices in the coming weeks and months.

Shivam Dwivedi
Cotton Bales
Cotton Bales

Cotton prices have dropped by over 10% across India and by more than 20% globally to a 6-month low, but there are no takers for the natural fibre because of slack demand for yarn & other downstream products.

"Cotton prices in forward markets are correcting for the upcoming cotton season" (October 2022-September 2023). It is a natural process in this demand-normalized world, and it is proceeding according to industry expectations. At the same time, current season cotton prices have begun to moderate and will gradually decline in stages over the next three months," said Prabhu Dhamodharan, Convenor of the Indian Texpreneurs Federation.

"Speculators in the global market have been forced to retreat after sellers of July futures mopped up certified stocks." Prices on the Intercontinental Exchange (ICE) in New York fell by more than 30 cents on a single day last week as a result," said Anand Poppat, a Rajkot-based trader in cotton, yarn, and cotton waste.

July contracts on ICE have fallen below 100 US cents per pound and were last quoted at 96.86 cents (60,100 a candy), while October contracts are quoted at 107.35 cents (66,600) and December contracts at 96.57 cents (59,625). Prices have fallen by 23% in the last week alone.

Aside from demand erosion, Tarun Satsangi, AGM (Research), Origo e-Mandi, believes that the firm US dollar outlook, global recessionary fears, and a better crop outlook will lead to lower prices in the coming weeks and months. However, more knowledgeable traders believe that speculators will have to square their positions in the "on-call" sales, primarily unfixed ones, built into the July futures on ICE. The characteristic of "on-call sales" is that a buyer buys cotton from a seller or speculator without negotiating a price. Cotton prices have risen this year, owing to strong demand and limited supply.

Quality cotton is currently quoted at Rs 90,000 per candy (356 kg) in the domestic market, while medium and inferior quality cotton is quoted at Rs 75,000 or less. "No one buys medium or low-quality cotton." "Quality cotton is almost non-existent," said Poppat.

July cotton futures were quoted at Rs 41,330 a bale (86,549 a candy) for July delivery, Rs 39,100 (81,880) for August delivery, and Rs 35,410 (74,152) for October delivery on the Multi Commodity Exchange. A few weeks ago, futures prices reached a high of Rs 50,330 per bale (1,05,396).

Cotton's average weighted modal price (the rate at which most trades take place) in agricultural produce marketing committee yards across the country is Rs 10,603 per quintal. Cotton's minimum support price (MSP) for the current crop year, which ends this month, has been set at Rs 5,726 per quintal by the centre. 

Because of the steep drop in December cotton futures prices, traders are demanding cotton yarn at a lower price. However, Dhamodharan stated, "Trade must understand the practical trend." Expecting a sharp drop in yarn prices based on December 22 forward contracts is currently a misleading indicator. "Spinning mills cannot sell yarn based on future cotton prices," he explained.

"Traders have been holding cotton stocks, and the stocks must eventually reach the market." "We will know the exact picture next month," said K Selvaraju, Secretary-General of the Southern India Mills Association, the apex body for the textile industry in the south.

"Spinning mills are losing money even at this price." They are selling yarn at a loss of Rs 40-50 cents per kilogramme. This is due to a lack of demand from downstream industries, as some units have slowed production," Poppat explained.

Yarn prices have also dropped by more than 10% in the last month. For example, 30CCH cotton yarn is now quoted at Rs 360-70 per kg, up from Rs 410-15 a month ago. Dhamodharan claims that a few people in the trade are misleading buyers and causing panic. "To rebalance supply and demand, spinning mills are now drastically reducing production by declaring more days per week as holidays." "The goal is to stabilize yarn prices," he explained.

Cotton imports, which are permitted duty-free until September 30, may increase as cotton prices fall. "With the falling trend, cotton imports could easily reach 25 lakh bales," said Poppat.

"We expect imports to exceed 20 lakh bales this season." It would be preferable if the Centre extended the deadline for duty-free imports until at least October 30. "SIMA is pleading with the government to extend duty-free imports until December 31," Selvaraju said.

According to Poppat, approximately 9 lakh bales of cotton have been imported, with agreements in place for an additional 10 lakh bales. The current situation, however, will have no effect on cotton planting. "Cotton acreage in Gujarat will be 20-25% higher." "The MSP has been raised by the Centre, and farmers would be delighted to receive prices in excess of Rs 8,000 per quintal for kapas (raw cotton)," he said.

Cotton exports could be limited to 40-42 lakh bales, according to Origo's Satsangi, while Poppat claims 40 lakh bales have already been shipped out of the country. 78 lakh bales were exported last season.

(Source: Business Line)

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