Cotton prices likely to fall as mills stock up

Spot cotton prices could fall next week on sluggish demand as mills are well-stocked, traders and analysts said. International prices could slip, despite steady Chinese buying, they said.

The domestic market could see few transactions next week as sellers are not lowering their prices and demand continues to be weak, A Ramani, a cotton analyst and joint secretary of South India Cotton Association, said.

Ramani said spinners have reasons not to buy at these levels. First, they are well stocked for the next few months. Second, mills are facing a sluggish yarn market, which has caused some financial tightness.

"The non-movement of yarn could result in subdued activity in the cotton market," he said. Sluggish demand conditions prevail even as arrival season is almost drawing to an end.

Shirish Shah of trading firm Bhaidas Cursondas and Company estimated that with an average daily arrivals figure of about 40,000 bales (1 bale=170 kg), the season would get over by end-May.

And then, mills would start utilising their stock. Currently, mills and ginners hold a whopping 15-16 million bales of cotton between them.

The stock would slowly start falling from now, he said. Demand from exporters has been sluggish too. Dealers said countries such as China have been showing interest primarily in low-micronaire (a measure of fineness) cotton.

"It's not clear if the enquiries have translated into fresh orders or transactions," Ramani said. Falling international prices could hit fresh export orders, as better quality cotton is now relatively inexpensive abroad, he said.

On New York Board of Trade, May contract ended Thursday at 50.88 cents per pound, down 1.67 cents from the previous close.

Ramani said, "The undertone is weak despite buying by China." He said the market is factoring in the fact that the US has huge stocks.

The weak trend, he said, could continue next week too, with the May contract's range likely to be 49-51 cents. Indian futures, on the other hand, could end next week with a slight gain, Amol Tilak, analyst at Kotak Commodities, said.

"Prices have cooled a bit. Demand may come in from mills. But prices may dip a bit before ending up next week," he said.

At 1455 IST on Friday, May contract of medium staple cotton was trading at Rs 1,766, up Rs 14 from the previous close, on National Commodity and Derivatives Exchange.