Commodities

Chinese uncertainties put pressure on global cotton prices

Even as global prices of cotton have declined sharply, the domestic market is yet to react. Arbind Gupta reports

Cotton prices in the domestic market maintained a steady trend during the last fortnight even as the international market experienced substantial pressure on prices which declined sharply. According to observers, domestic prices may soon react to this international development once the players take their position back after a temporary easy phase in the local markets.

"Surprisingly, the local market has not reacted a bit on the recent fall in international prices. The only reason I could see is that there is currently lack of buying support. Except for small ones, most of the mills have covered their requirements. Moreover, sellers are also shying away from the markets. Many of the sellers are presently holding themselves back on account of dry weather that affects the moisture content in cotton bales, leading to weight loss. Maybe once the rains start, these sellers will take their position in the markets. In short, the markets are at present devoid of both buying as well as selling supports," said Mr M B Lal, managing director and former CMD of the Cotton Corporation of India (CCI).

Market observers are of the opinion that the domestic market is expected to witness a certain degree of correction once some of the issues on the demand-supply side are resolved. The international market has received the beating after the recent EU/US restrictions on Chinese imports. China has already decided to slowdown their raw material consumption. "The China factor has taken its toll on the overall market sentiment. Today, everybody is awaiting the Chinese move in future. Unless there is any positive development on the Chinese front, we don't see any reversal in the trend in the short term so far as the prices are concerned," stated trade sources.

There is also apprehension that some of the export quantities may get diverted to the domestic markets as exporters are finding it difficult to firm up their orders on account of weak demand position in the international markets. Some of the hedge funds have already started liquidating their positions. The Maharashtra cotton federation which had urged the Centre for export concessions is not likely to realise its intent as the government may refrain from giving away such sops due to compulsions on the WTO front. Moreover, the federation has received a setback as its recent effort to sell its stocks has not evoked satisfactory response. In its first such initiative, the federation could manage to sell only 25,000 bales. Meanwhile, the state federation has approached the East India Cotton Association (EICA) for baling it out of the current plight. Confirming this, Mr K F Jhunjhunwala, president, EICA said, "The federation has approached us. What we are providing them is our infrastructure and facilities like testing, etc. In fact, our's will be the indirect marketing help."

Meanwhile, polyester prices have nosedived in the wake of constant pressure on raw material as also fading demand sentiment. Chinese uncertainties have adversely affected the polyester demand in the international market. However, experts have ruled out any change in fibre consumption pattern due to considerable drop in polyester prices which had kept a firm trend in the past, particularly when compared to cotton. "Consumption pattern is unlikely to alter even as polyester prices have gone down to a great extent. The switchover process by mills to cotton from polyester for the current season is already over and this cannot be reversed. Cotton yarn prices have stabilised now. Spinners are likely to reap some benefits in the current setting," stated Mr B G Jain, director, Forbes Gokak.

Cotton sowing in the north zone has picked up. According to observers, sowing has so far been quite satisfactory. "In fact, northern states may see even 10-15 per cent increase in area despite all speculation that farmers may opt out of cotton. Moreover, the farmers seem to be quite optimistic about the introduction of Bt cotton in the region after the recent approval by the GEAC. In the new season, more area will come under hybrid," said a trader.

Meanwhile, cotton arrivals have already touched around 231 lakh bales. Currently, the major arrivals are taking place only in Gujarat.