Cotton sector pins hopes on stable demand-supply situation in new season

Yarn makers, though, complain of sharp drop in demand and growing stockpiles

The Indian cotton sector is hoping for relatively better supply and stable prices in the coming season, which starts from October 1, after a difficult year.

According to industry players, the yarn segment has been reeling from the impact of low demand, high cotton prices, and growing stockpiles, over the past few months.

Demand, especially, has taken a hit because of the ongoing war in Ukraine, which has affected demand from Europe, while the economic slowdown in the US and other developed countries has also been a setback.

On the supply side, the first advanced estimate has offered some hope. It has pegged cotton production next year at 34.19 million bales (1 bale weighs 170 kilograms), a rise of 9.58 per cent over the production number as per the fourth advanced estimate of the 2021-22 season.

However, stakeholders are sceptical about the estimate because of the unexpected late rains in the main cotton growing regions, increased pest attacks, and some shift towards other crops have made stakeholders wary of the estimates.

Besides, they are also wary of the accuracy of the first estimate since it underwent massive revision this season.

Last year, the government in its first advanced estimate of cotton production released on September 21, 2021, had pegged the output in the 2021-22 season at around 36.21 million bales. But, by the fourth estimate, released on August 17 this year, the number had been cut by almost 14 per cent to 31.20 million bales.

The revisions also meant that India, a country looking to export cotton, had to scramble for supplies to meet the rising demand from its yarn and textile industry within seven to eight months. The government also slashed the import duty of 11 per cent in April to enable yarn and textile makers to replenish their inventories.

Missing orders

“The cotton production numbers may change depending upon pest attacks, climatic changes and intensity of rain,” said K Venkatachalam, chief advisor, Tamil Nadu Spinning Mills Association (Tasma).

But, for the textile industry, Venkatachalam said the problem now is not with the crops and prices, but orders. “Orders in the yarn segment have reduced almost 70 per cent due to the global economic slowdown, while the Ukraine war has affected demand in Europe,” Venkatachalam added.

This year, cotton prices more than doubled to around Rs 95,000 per candy (1 candy=356 kg) in May, up from around Rs 48,000 at the beginning of this season, an increase of almost 98 per cent due to low supplies and high demand.

In the coming year, the textile industry feels prices may stabilise around Rs 60,000-70,000 a candy. “At present, due to the Ukraine war, high inflation across the world, and high interest rates, demand has slowed down and international prices of cotton are also falling, which is why we expect prices to stabilise around Rs 60,000-70,000 a candy,” said Sanjay Kumar Jain of Delhi-based firm TT.

At present, prices of the Shankar-6 cotton variety for the new season are reportedly trading at Rs 73,000-75,000 per candy at the spot markets of Gujarat.