Cotton consumption set to dip

The slowdown in the textile industry is likely to impact cotton consumption in the country. The industry is expected to consume around a million bales (1 bale = 170 kg) less than the earlier projected 24 million bales in 2007-08.

"The growth rate in cotton consumption for the current season will be low compared to the projected one. It will be around 23-23.5 million bales, which is more than last year's consumption," said J N Singh, textile commissioner, Ministry of Textiles.

With the country expecting an output of 31 million bales this season, the sector will now rely more on overseas demand, which, according to industry experts, is likely to remain firm. According to market sources, exports may reach 7 million bales against 5.5 million bales last year.

K F Jhunjhunwala, president, Cotton Association of India, said, "Activities in the spinning sector has slowed down and mills are buying hand to mouth. Normally, during this time, when arrivals are at their peak, mills build up their inventories. However, it is not happening this time."

He further added that cotton consumption may reduce by a million bales. Sources in the Cotton Corporation of India (CCI) also were of the view that consumption could be lower than expected. 
 

Cotton consumption by mills
Year	Consumption
2005-06	21.50
2006-07	22.00
2007-08*	23.00
* Expected, (In mn bales)

As on March 31, 2007, the overall installed capacity in mills, including the small spinning sector, was 39.52 million spindles.

Interestingly, the government has earmrked an investment of Rs 55,000 crore for the spinning sector out of the total Rs 1,94,000 crore for the textile sector in 2007-12.

According to Arun Dalal, a Ahmedabad-based cotton trader, most of the mills have a stock for another 2-3 months, which is another factor why buying has not been very encouraging.

The Cotton Advisory Board (CAB) is expected to discuss the issue in its meeting next week to figure out the consumption levels of cotton this year.

Market outlook
The arrival season is at its peak across the country with 16.4 million bales already reaching the market.

The cotton market in the last few days have shown a firm trend with prices rising by around Rs 100 to Rs 200 a candy (356 kg).

According to CCI sources, good demand from export markets is the key factor. So far, the country has already exported 3.7 million bales. The demand from domestic ginners too is helping the market to perform slightly better.

For instance, in Gujarat the average rates, which were at Rs 20,100 a candy, are ruling at Rs 20,200 a candy.

Similarly, in Andhra Pradesh, the rates have moved up by Rs 200 to Rs 20,400 a candy.

The supply pressure is expected to slow down by the mid of January. Industry experts said that in the next fortnight 20 million bales will be in the market. "With such supply, market may get subdued in the next two months time," said Jhunjhunwala.

However, the international trend which presents a bullish scenario may not let the domestic market go very low.

According to sources at CCI, domestic market will follow global cues. With cotton production in the US on the decline, the demand for Indian cotton is expected to be on the rise. China, Bangladesh and Pakistan are the major cotton importing countries for domestic cotton.

WITHERING LOWS

Cotton consumption to be one million bales less than estimates

Spinning sector going slow

Buyers refrain from building up inventories

Arrivals at its peak,16.4 mn bales hit the market

Exports at 3.7 mn bales

Prices firm up on export demand