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The Southern India Mills’ Association

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Cotton prices harden on higher minimum support prices

CCI presence in market also keeping prices above MSP
The cotton season has commenced this year with an unusual trend — prices are up despite new arrivals.
The price of the widely-used Shankar 6 variety is ? 130.42 a kg against ?105.34 a kg last November.
Since October 1, when the season started, more than 20 lakh bales are said to have arrived in the market. Trade and industry associations have given varying estimates for cotton production this year (October 2018 to November 2019), with expectations ranging from 343 lakh bales to 380 lakh bales. The daily arrivals of cotton have crossed one lakh bales now and are expected to go up.
The prices usually drop when the new season starts. However, this year, prices are remaining firm for several reasons, say the trade and industry representatives.
The main cause is the hike in minimum support price (MSP), says P. Nataraj, chairman, Southern India Mills’ Association. The MSP is higher by 26% to 28 % this season, depending on the cotton variety.
Situation may change
The market prices are above the MSP by just 1% to 1.5%, says P. Alli Rani, CMD, Cotton Corporation of India (CCI). When the daily arrivals pick up, the situation might change, she says. Though the corporation has made minimum purchases now, it is present in more than 348 centres, ready for MSP operations if the prices fall. The presence of CCI in the market is also keeping prices above MSP, she says.
According to J. Thulasidharan, president of Indian Cotton Federation, sentiments are playing a bigger role in determining prices at present more than demand and supply.
The Cotton Advisory Board normally meets in October to estimate cotton production.
This year, it had not met so far. “We have written to the Textile Ministry to convene it soon and clear all the rumours and anomalies about the expected production and to give a clear picture of the crop position,” he said.
The movement of international prices will also have an impact on the domestic cotton prices. If China levies duty on import of cotton from the US, which is a major cotton producer, it will have an impact on the international and Indian cotton prices.
Atul S. Ganatra, president, Cotton Association of India, said domestic prices are high as the international cotton prices are up. Further, this year, there is a fear of a smaller domestic cotton crop. Prices might not reduce much for quality cotton as the season progresses.
Industry sources say the mills are buying cotton for their short-term needs, expecting arrivals to pick up and prices to stabilise.
Slow offtake
The yarn offtake is slow and is likely to revive from next week. Cotton yarn exports were good from April to August (553 million kg between April and August this year compared with 364 million kg during the same period last year).
Mr. Nataraj says the textile industry, which is the largest consumer of cotton in the country, is doing well and cotton consumption this year might be same as last year.
“We have to wait and see how the cotton pries will move.” At present international prices are higher than domestic prices.
Volume of purchase of Indian cotton by the mills will depend on the price movement, he says.