Exporters begin bookings, even with prices at record high, with no slackening in global demand.
The Government of India’s decision to allow cotton exports from October 1, coupled with removal of the Rs 2,500 per tonne export duty on raw produce, is likely to keep prices firm in the short term.
Normally, the price starts declining as kharif crop arrivals accelerate, but this may not happen. Exporters have started booking cotton in the forward market for delivery after two months, as they fear prices may firm up from here, even as these are already at a historic high.
World consumption is estimated to remain higher than the production and Pakistan likely to witness crop loss due to floods. Also, the demand is growing in China, the largest importer of cotton from India. “The government’s decision will have a bullish impact on cotton prices, which are likely to remain firm in the short term,” said Rakesh Rathi, president, North India Cotton Association.
Agrees a top official of a leading textile company here, “We were expecting prices to come down from the current record levels in December-January, when cotton arrivals in the country pick up. However, now it seems the prices will not ease, as export is being allowed.”
Forward prices higher
Despite the fact that Gujarat’s benchmark cotton variety, Shankar-6, is scaling an all-time high of Rs 32,000 per candy (a candy is 365 kg), exporters have started booking cotton at higher prices in the forward market.
By market reports, exporters booked cotton for December delivery at Rs 32,000 per candy today. Yesterday, prices for December delivery were quoted at Rs 31,700 to Rs 31,800 percandy.
The removal of restrictions on exports will arrest the fall in prices,” agreed Kishor Shah of the Central Gujarat Cotton Dealers Association.
Cotton production in Pakistan is estimated to take a hit of two million bales (a bale is 170 kg) in 2010-11. Recently, the US Department of Agriculture (Usda), in its estimates for August, had raised projected import needs in China by 850,000 bales. The government there had to auction stocks from its reserves to meeting the growing demand of China’s textile industry.
The notification allowing exports of cotton from October has also come at a time when cotton prices in the international market are ruling firm. Recently, prices touched a 15-year high of 95.6 cents per pound in the international market.
Globally, current production and consumption forecasts hint at a gap of four million bales in 2010/11. This represents the sixth consecutive crop year where production has been lower than consumption, while ending stocks are expected to fall another two million bales by the end of 2010/11. Usda estimates world cotton production to rise by 14.4 per cent at 116.9 million bales (mb) in 2010/11 from 102.1 mb in 2009/10. While, consumption is seen as up to 120.9 mb in 2010/11 from 117.7 mb.
Demand is certainly rising in the domestic market. Cotton Adivisory Board (CAB), an industry body, estimated total output at 29.5 mb against overall consumption of 33.3 mb for the cotton year 2009-10. Exports are estimated to rise to 8.3 mb. CAB pegs ending stock for the current cotton year (Oct-Sept) at just above four mb.