Pune: India's decision to suspend 11% import duty on cotton until October has triggered an immediate reversal in the fibre's rally, with cotton bale and yarn prices falling by up to 3% on Monday. Rates are expected to slide by another 1-2% in the next few days, curbing a surge that had lifted cotton prices by 27% over the past three months, industry insiders said.
"Cotton prices have started softening while we have advised the spinning mills to reduce yarn prices," said K Selvraju, secretary general at Southern India Mills Association (SIMA).
Prices of 29 mm cotton had risen to ₹69,200 per candy in mid-May from ₹54,200 in February. They had cooled slightly to ₹65,000 per candy during the last 20 days as cotton futures prices on the International Cotton Exchange (ICE) softened.
On Monday, government agency Cotton Corporation of India slashed cotton rates by ₹700 per candy to ₹64,300/candy. Yarn prices have been cut by ₹10/kg, which is about 3%.
"Many brokers have reported that a further decrease in prices is expected as sale is not happening at Monday's discounted prices," said Pradip Jain, chairman of Khandesh Ginning and Pressing Association.
Although international prices are not cheaper than domestic prices, increase in availability of cotton is expected to ease prices and prevent hoarding.
Before duty cuts, cotton prices were expected to rise to as high as ₹75,000 per candy largely due to hoarding.
The finance ministry, in a notification issued on Saturday, suspended import duty on cotton from June 1 to October 31.
ET had reported that textile industry bodies, including SIMA and Tiruppur Exporters' Association, had written to the Centre on duty removal, arguing that Indian manufacturers were losing competitiveness against rivals in Bangladesh and Vietnam that enjoy duty-free access to imported cotton.
Exporters said India has become dependent on imported, export-grade cotton after years of stagnant domestic output. Rising raw material costs had eroded margins and weakened competitiveness of Indian yarn and garment exports in global markets.
According to SIMA, India's share of global textile trade has remained largely unchanged at about 4% over the past two decades while Bangladesh's share has risen to 6% from 2% and Vietnam's to 5% from 0.6%.
"Currently, cotton inventory is not with farmers but with stockists and multinational companies, who have started increasing prices and making exports unviable," said Vijay Agarwal, chairman of Cotton Textile Export Promotion Council. "Hoarders will have to lower prices as import duty has been removed."
The decision, however, sparked concerns among farmers, coming just as the government announced a ₹5,659-crore Cotton Productivity Mission aimed at boosting domestic output.
Industry representatives, though, said the limited import window, which closes in October, and a 7% increase in minimum support price should cushion growers if imports pressure prices during new harvest season.
Source Name : Economic Times