Global short supply to push cotton prices up.

COIMBATORE: Cotton prices are expected to firm up further in the current season as demand is higher than supply in the international market. A trade source says that whatever way the Indian government decides on the revaluation of the pending registered cotton exports, the prices will only go up globally.

At present, Indian cotton prices are lower compared to global prices. While Shankar 6, a much-sought-after variety in India, is selling at 83.5 cents/pound, the international varieties equivalent to this cotton are selling between 92 cents/pound and 94.5 cents/pound.

As India is a cheaper source of cotton, the demand for Indian cotton has been higher this year in the global markets. India’s global share in the export market is pegged at 22% at 6 million American standard bales (1 bale is 220 kg).

US is the largest exporter with 14 million American standard bales. While India is a net exporter, today it is struggling to balance between domestic needs and exports. The requirement of cotton has increased globally as the industry is on a revival path following recession.

The country’s production is estimated at 292 lakh bales (1 bale is 170 kg) and export surplus is kept at 70-80 lakh bales this year. Of the 84 lakh contracted bales, 73 lakh bales have been physically moved out of India.

If the government permits the export of remaining 11 lakh bales, there will be a definite shortage in the Indian market.

Cotton analyst A Ramani told ET that if the government decides against allowing the export of remaining cotton, the local mills would be benefited.

“But the prices in the international market will continue to move up due to shortage in supply,” he added. Sri Gomathy Mills MD and Cotton Textiles Export Promotion Council chairman VS Velayutham told ET that despite an increase in acreage of cotton cultivation, the yield is a bit lower this year due to abnormal delay in monsoon.

Also the import of cotton is insignificant in India (2.5%) as textile mills predominantly import only the extra long staple (ELS) varieties from the US and other countries to manufacture finer counts of yarn. India has imported 1.9 lakh bales of ELS cotton from US, 1.75 lakh bales from Egypt and 50,000 bales from CIS countries.

“In Indian cotton, the yarn realisation is less and therefore we import ELS variety cottons from other countries for making thinner fabrics,” said Mr V S Velayutham. His company has imported cotton from Sudan this year.

Of the non-ELS varieties, India imports around 3 lakh bales every year for a lesser price. In September 2009, imported cotton was 2 cents/pound cheaper than the Indian cotton. But due to price parity, where the Indian cotton is cheaper, only random booking has taken place for the non-ELS varieties after October 2009.

“But now, a situation is developing where Indian spinners might be forced to import due to compulsion,” said Mr Ramani. Cotton production is expected to go up by around 8% globally in 2010-11. “The increase in supply will be capable of taking care of increasing demand and so the chances of prices shooting up abnormally are remote after July 2010, when the new international cotton season begins,” he added.

Source : The Economic Times