Mumbai: Domestic cotton prices have been ruling firm on speculation of a shortfall in production for the 2018-19 (October-September) marketing year. However, steadily falling global prices along with weak demand for cotton yarn may drag domestic prices lower in the months ahead.
The Cotton Advisory Board of India has pegged domestic production in 2018-19 at 343 lakh bales, less than the previous year’s harvest of 348 lakh which was a 12-year low. One bale of cotton weighs 170 kilograms.
Output is seen taking a hit as high summer temperatures, delayed onset of monsoons and water shortage especially in key cotton growing states of Telangana, Andhra Pradesh, Karnataka and Maharashtra has affected cotton yield, which has driven prices higher.
Thankfully, a fall in global prices has tempered the rise in domestic cotton prices. In global markets, cotton prices have declined largely as the escalating US-China trade war has hit demand for the commodity. While US is one of the largest exporters of the commodity, China is the largest consumer.
At present, price of imported cotton is nearly ₹3,000-4,000 cheaper than domestic price, which is about ₹46,000 per candy. One candy equals 356 kilograms of ginned cotton.
According to Southern India Mills Association, domestic spinning mills are inclined to import and save costs. Domestic traders are likely to have contracted import of 22 lakh bale of cotton over the past few months, far higher than the usual. However, it is hard for small and medium enterprises to import, as they may not have the financial muscle to buy and store.
On the other hand, weak garment exports have been weighing on demand for yarn. Industry experts therefore feel that the trend of rising domestic cotton prices may reverse over the next few months.