Cotton prices to stay buoyant

The cotton market, which witnessed a sudden decline in prices last week, could stabilise at the current levels. Robust demand in both the domestic and export markets might stop prices from crashing to the levels experienced two months ago, industry sources said.

The prices of Shankar-6, which touched levels of Rs 21,100 a candy (1 candy = 356 kg), saw a correction of Rs 600 in the last 4-5 days and, currently, is at Rs 20,500 a candy. In May, the cotton rates were ranging between Rs 18,200 and Rs 18,700 a candy. According to market sources, rates have gone to uncomfortably higher levels in a short term, and the downward correction was on cards.

Sources in Cotton Corporation of India (CCI) said, "Further fall in cotton is not expected immediately. The market should stabilise at Rs 20,000-20,500 a candy levels till the cotton season starts." The cotton season begins in October and ends in March.

O P Agarwal, executive director, East India Cotton Association, said, ''The market is very volatile. There is demand and prices are likely to remain firm. Though we are optimistic about a better crop this year, the pricing scenario will depend on the sowing process, arrivals and the exact crop size."

Gobal cotton prices, which run in tandem with New York Futures, saw a steep rise of over 25 per cent during mid-June and mid-July, when it surged to 72 cents/lb from 55 cents/lb. Market analysts said that this was mainly because of the demand from China during the lean period. However, prices could not sustain at these high levels and last week saw rates slipping to 65-66 cents/lb.

There were reports of dwindling stocks in Chinese firms which forced them to go for imports. China consume almost 40 per cent of the global cotton production.

The demand from domestic mills, that have cover till August, will come by September-October and keep the cotton prices firm, according to marketmen. Firms that have cover till September-October constitute less than one-fifth of the total firms in the country.

The country is expected to have a production of close to 300 lakh bales (1 bale = 170 kg) in 2007-08 against 270 lakh bales last year, up 11 per cent. Market speculations suggest that the bumper crop would soften the prices.

However, with domestic consumption having reached 225 lakh bales and demand from China and far-eastern countries, including Bangladesh and Thailand, set to rise, CCI officials have ruled out a sharp decline in prices despite the expected bumper production. Further, the reduction of cotton acreage in the US this year is expected to keep the prices firm.

For the immediate July-August shipment, a further 8 lakh bales have been booked for exports.