Cotton firm on low inventory

Stocks to dip 10 lakh bales from last year's level.

Despite 10 per cent higher estimated output, cotton prices are likely to remain firm throughout this year owing to receding carry-over stocks.

"This year, the carry-forward stocks are set to decline to 45 lakh bales, compared with 55 lakh bales last year and 72 lakh bales two years ago. This means the price outlook is moving towards 'firmness' this year from 'stable' last year and 'declining' two years earlier," said K F Jhunjhunwala, president of East India Cotton Association.

Speaking on the demand-supply situation in the domestic and exports markets, he said the country's total output is estimated at 270 lakh bales, of which 60 lakh bales is expected to be exported. As local consumption is 225 lakh bales, a deficit of 15 lakh bales for the current year will have be met by the carryover stocks.

Cotton prices are picking up globally as well. Now, with the country's economy being open, the domestic prices need to move in tandem with the international prices.

Hence, there are "limited-to-no chances" for the local prices to fall during the entire year, Jhunjhunwala said. But that does not mean that the sector is facing a short supply, he added.

Supply worries have helped cotton prices surge up to 3.5 per cent across all varieties in the domestic spot market from the beginning of this month. While Bengal Desi today hit a high of Rs 3,881 from Rs 3,768 a quintal at the start of February, V 797 also made a similar gain to Rs 3,909 a quintal (Rs 3,627).

Jayadhar today perked up to Rs 4,021 a quintal (Rs 3,965). Again J 34 gained substantially to close at Rs 4,612 a quintal (Rs 4,471), while NHH and Ira ended higher at Rs 4,668 a quintal (Rs 4,527) and Rs 4,912 a quintal (Rs 4,752), respectively. Shankar 6, the most prominent variety, too perked up to Rs 5,287 from Rs 5,262 a quintal at the beginning of this month.

A leading Mumbai-based cotton trader said the daily arrivals declined to 1.25 lakh bales now from the usual 2 lakh bales. Besides, mills have started buying fearing further quality deterioration in the domestically available cotton.

Also, export orders, driven by China, have swelled. Of late, Pakistan has also started sourcing cotton from India resulting in a huge demand-supply mismatch, the trader added. Cotton exporters have clocked orders of 100 tonne thus far this year.