Robust demand amid a supply squeeze and a rally in world markets will help Indian cotton set a new record this week, though government curbs on exports may limit the upside, dealers said on Monday.
"From every corner of the world we are getting bullish news. Demand is good in every major consuming country and every supplier is struggling to fulfil orders," said a director of a leading Indian cotton export firm, which is in the business for over eight decades.
Cotton futures powered to their highest level in 15 years on Monday, barrelling past the psychological $1 a lb mark for only the second time since 1960, analysts said.
"Due to harvesting delay, there is supply shortage in India. So, in the near term, until the new crop arrives, the prices are likely to remain high in domestic market also," Saurin Parikh, co-promoter, Pashupati Cotton Industries.
The textile industry had expected the cotton crop to arrive in the markets in significant quantity form mid-September but heavy rain in the main producing states, western Gujarat and Maharashtra and northern Punjab and Haryana, hindered harvesting.
The new crop was likely to reach the market three weeks later than first expected, said an official at the Cotton Advisory Board, a federal body drawn from farmers, industry groups, traders and the government.
In India, the most common Shankar-6 variety cotton rose 1.3 percent to a record 38,500 rupees per candy (of 356 kg each) on Monday, up over 73 percent compared to 22,200 rupees a year ago, data with Cotton Association of India showed.
"Rising international prices have turned situation in favor of exporters but the availability of raw cotton is a major issue as the harvesting got delayed," said N M Sharma, managing director, Gujarat State Co-operative Cotton Federation Ltd.
Floods have ravaged the crop in Pakistan and also hurt crops in China, swelling demand for the Indian fibre. India will only allow cotton exports of up to 5.5 million bales (1 bale=170 kg) in the year to September 2011, Trade Secretary Rahul Khullar said this month.
"Restrictions on exports are likely to cap the upside in prices," said Sagar Pamnani, a Maharashtra-based trader. The country has delayed the registration of cotton for export in the 2010/11 season to Oct 1, after the textiles industry raised concerns over rising local prices, the textile ministry said.
India's cotton output is seen at a record 32.5 million bales in 2010/11, Textile Commissioner A B Joshi said last month, a 10 percent increase from 29.5 million a year ago on a record area.