Business

As Cotton Demand-Supply Situation Eases Globally, Prices Likely To Take A Dive

With the gradual ease in the supply situation of cotton both domestically and globally, cotton supply and demand situation is all poised to ease aided by the quota restrictions imposed by China on cotton imports.

To start with, India’s local cotton prices witnessed a fluctuation within a narrow range during February second half as well. However, fiber prices came down marginally after the fluctuation. As the February month witnessed higher local market prices, arrival of the fiber has improved and the supply has been eased. Farmers and traders holding on to cotton stock released the fiber as prices were favourable. At the same time, improved availability has brought down the fiber prices too.

Taking a look at total stock, the total cotton arrival in the country till date is estimated to be around 19 million bales and current arrival is estimated to be between 180,000- 200,000 bales per day across India. In the meantime, Cotton Association has estimated that domestic consumption of cotton will improve this year (to 29.5 million bales) while the production will be at 34.1 million bales. This indicates availability of the fiber in abundance as export has been slow and some exporters have cancelled export shipment due to the strong domestic cotton price. On the price front, current domestic price of benchmark Shankar-6 variety was recorded at around Rs. 43,000 per candy (355.6kg, on 24^th February 2017) which is higher by Rs 300 per candy compared to the mid February price.

On the global front, cotton prices continued with the fluctuation within a narrow range during the second half of February. The benchmark A index remained well above 80 cents mark and looks healthy as export sales data gave impetus to the cotton prices. As reported earlier, India’s demonetisation drive has tightened the fiber supply and helped global cotton price gain. However, looking at the future, the cotton prices may not remain as strong as it seems now. USDA’s first look at this season’s cotton cultivation predicts that the US would witness 14% increase in cotton acreage with 11.5 million acres under the crop. This would result in higher production and reduction of 4 US cents per pound in price as per the report. The key data on the crop from USDA’s latest forecast indicates that world cotton production to be 105.4 million bales up from the earlier estimates to 104.2 million bales (of 480 lb, last season’s production was 96.5 million bales). Consumption estimates increased to 112.5 million bales from earlier forecast and ending stock revised upward to 89.9 million bales from earlier figure of 89.1 million bales.

During the February second half, ‘A’ index witnessed fluctuation and recorded at 84.6 US Cents on 24^th February (compared to 85.65 on 13^th February 2017). To look at the trend, ‘A’ Index was at 78.55 US Cents in December 2016 end and was at 69.55 US cents per pound in December 2015 end.

On the yarn front, cotton yarn prices remained steady during the fortnight. Yarn manufacturers have been trying to hike prices with the increase in cotton prices. However, demand for cotton yarn is not strong enough to support higher prices.

Cotlook ‘A’ Index: 84.6 (As on 24^th February 2017)