Industry anticipates record production, but economic uncertainty could weigh on purchases.
Even as India eyes a record cotton production of more than 36 million bales (a bale = 170 kg) in 2011-12, the industry seems to be concerned over a possible decline in consumption from domestic millers due to the global economic uncertainty.
Buying by mills may be less this year, as they face financial crunch, besides a slowing demand from the US and Europe due to the prevailing economic uncertainty. A bumper crop will be conducive for them to keep purchases on the slow track.
| THE PROBLEM OF PLENTY | ||
| Year | 2010-11 | 2011-12E |
Gujarat, Andhra,
Maharashtra
Gujarat, Andhra,
Maharashtra
Compiled by BS Research Bureau
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A Business Standard survey showed that a majority of cotton stakeholders across the country feel that the production would be in the range of 35-36.5 million bales in 2011-12, up 12-15 per cent from the 31.2 million bales last year.
“India will see a record cotton production this year, of more than 36 million bales, because of good monsoon rain in the major growing regions. Also, with the open general licence (OGL) for exports in force, we see cotton exports in the range of 7-10 million bales this year. This will mean a large surplus for domestic consumption,” said an industry source based in Ahmedabad.
According to industry insiders, of the total cotton production of about 36 million bales, nearly 12 million bales are expected to be available in the domestic market. This is also likely to put downward pressure on the prices.
“There is going to be a down-side pressure on prices as the consumption will be a major concern with about 12 million bales of available surplus in the domestic markets. Prices may dip to about Rs 35,000 a candy (1 candy = 356 kg) or even below in due course of time,” said Ritesh Agrawal, CEO, Wisdom Cotton, a Kolkata-based trader and exporter.
Millers in India have to face tough time coping up with global economic uncertainty. According to an estimate provided by the South Indian Mills’ Association (Sima), so far in the current financial year, the Indian textile industry has incurred a loss of over Rs 15,000 crore due to high volatility in the cotton and yarn prices.
Echoing similar sentiments, Paritosh Aggarwal, MD, Suryalakshmi Cotton Mills said, “Production is affected due to several reasons, including power shortage, high input cost and financial crunch. Therefore, we see consumption of to be low this year.”
Global economic conditions do not seem to be encouraging while domestic export policy for readymade garments has dented millers’ business.
"US and Europe have lower growth projections, which may lead to further demand destruction in these regions. Already many of our mills are operating at reduced capacity. If situation does not improve, there is more trouble for them,” said Rakesh Rathi, president, North India Cotton Association.
Globally, cotton production is expected to rise by 8-10 per cent this year, while consumption in major consuming countries is not believed to increase at par with the production.
“There is no buying in market at present. Tougher times will start once arrivals start from November. This would cause price fluctuation,” said a leading cotton exporter from Mumbai. “Our domestic mills are not doing well, many have already defaulted with Cotton Corporation of India for not lifting promised lot of cotton. Things are not in a good shape,” he added.
Cotton yield, which has been falling for the past four years, is believed to improve this year especially in Maharashtra and Gujarat as these states had witnessed good rainfall during monsoon. Cotton yield in India has gone down from 554 kg per hectare in 2007-08, to about 475 kg per hectare in 2010-11. India’s total area under cotton during 2010-11 was 11.16 million hectares, the highest ever.
“Gujarat will continue to top country's cotton production with estimates of more than 13 million bales of output, while Maharashtra will rank second followed by Andhra Pradesh. The yield has been a major concern across the country, but this year with good monsoon, we expect it to improve,” said N M Sharma, managing director, Gujarat State Cooperative Cotton Federation (Gujcot).
Meanwhile, government agencies in India, too, anticipate higher cotton production. The agriculture ministry expects the production to be 36.1 million bales, while the Cotton Advisory Board pegs production at 35.5 million bales. The Cotton Association of India estimates it to be 36.3 million bales.