Commodities

Domestic cotton prices to remain range bound

Cotton prices in the domestic market are likely to maintain a rangebound trend in coming weeks as a majority of arrivals have already taken place. Arbind Gupta reports

Domestic cotton prices would be range bound in the short term after a firm to steady trend witnessed during the recent past. Average domestic prices saw an improvement of 2-3 per cent on the back of 3-4 per cent increase seen in international prices. According to trade and industry sources, the current levels would be maintained in the near future as more than 85 per cent of the production has already arrived. “The pressure on trade has eased out considerably since a large bulk of transaction is over. The transaction currently happening is too low for any significant fluctuation in prices to take place,” said sources with the East India Cotton Association (EICA). In the long term, prices would depend upon the sowing pattern and the progress of monsoon. This apart, China’s decision to cover its cotton requirements would also play a big role in case of future price behaviour on the domestic as well as international markets.

Meanwhile, the Cotton Advisory Board (CAB) at its recently concluded meeting has revised the total domestic cotton production at 232 lakh bales for the current season ending September 2005. Along with opening stock of 21 lakh bales and 6 lakh bales of imports, the total supply for the season has been estimated at 259 lakh bales. As against this, the total consumption is estimated at 210 lakh which includes mill consumption of 168 lakh bales, SSI consumption of 17 lakh, non mill of 13 lakh and exports of 12 lakh bales. This leaves the end stock at 49 lakh bales. Though traders have called the supply estimation reasonable, they view CAB’s consumption estimation on a slightly higher side. “According to trade, consumption figure is estimated a little bit higher by around 5-8 lakh bales,” said an official with the EICA.

On the arrival front, more than 215 lakh bales have reportedly reached various markets, while the per day national arrival has come down to around 45,000 bales. In the north zone, 40 lakh bales have arrived as the daily arrival is hovering around 5,000-7,000 bales. In the central zone, Gujarat has seen arrivals of the order of 41 lakh bales, whereas in Maharashtra and Madhya Pradesh, arrivals were placed at around 52 lakh bales and 15.65 lakh bales. In the south zone, arrivals in Andhra Pradesh, Karnataka and Tamil Nadu stood at 31.95 lakh bales, 6.60 lakh bales and 2.83 lakh bales, respectively.

According to sources, the Maharashtra federation has procured around 43 lakh bales in the state. However, it has managed to sell only 10 lakh bales so far. The Cotton Corporation of India (CCI) has purchased around 26.70 lakh bales, of which it has sold over 27 lakh bales. “Since in most places, prices currently are above MSP, we have considerably reduced our exercise under this mechanism,” said a CCI official.

On the performance of Bt cotton, Mr K F Jhunjhunwala, president, EICA said, “Last two years have been pest free for Indian cotton cultivation and hence, it is hard to judge the performance of Bt varieties in the Indian context. However, globally, Bt has been well accepted, while the technology is proven one. This year cotton quality has been satisfactory through out the country.” Expressing his views on the Maharashtra government’s monopoly scheme, EICA chief said that in the changed trade order such an exercise should be done away with as it would be only counter productive for the entire cotton economy. Since the higher yield has offset the effect of lower prices to a large extent, the area for the new season is unlikely to see any major change. “I don’t see area going down below 86 lakh hectares for the forthcoming season even as prices have rule soft most of the period during the current season,” Mr Jhunjhunwala said.

All good mills on the other hand have almost covered their requirements, except for those which are going long as also those which don’t have that kind of financial health. Finally, yarn prices have shown some improvement (2-3 per cent). This is expected to reflect positively on the mills’ bottomline.

On the other hand, international polyester fibre prices have gone up, following increase in the raw material prices. Domestic prices of this synthetic fibre are also likely to reflect a similar trend, say market observers. ‘Hike in prices will render polyester less competitive as compared to cotton. But it will continue to be more competitive than viscose and acrylic,” said a trader.