Cotton surges 15% on demand, low supply

Surging domestic demand and low arrivals have fuelled the spot prices of cotton by 15 per cent in the last one month.

The benchmark Jaydhar variety rose to Rs 4,893 a quintal from Rs 4,274 a quintal during the month. V797, a principal cotton variety, jumped by 12.58 per cent to Rs 4,527 a quintal from Rs 4,049 a quintal. Similarly, NHH shot up by 6.35 per cent to settle at Rs 5,174 a quintal. Bucking the trend, 26M dropped by 6.28 per cent to Rs 5,230 a quintal.

The sentiment in the local variety, J34, too, remained bullish throughout the month, with the price hovering around Rs 5,205 a quintal, reflecting a rise of 8.17 per cent. Karanji was another variety that remained in the limelight during the period by gaining 5.55 per cent to hit Rs 3,800 a quintal.

All the other varieties, however, were hit by lacklustre demand, resulting in prices rising mildly in the range of 2 to 5 per cent.

Shrinking arrivals in the market yards have led to the current rise in prices of cotton. Market sources believe demand from mills is directly met by local suppliers, resulting in low arrivals in mandis. Mandis across the country are witnessing arrivals of 25,000-30,000 bales (1 bale = 170 kg) against the normal arrivals of 50,000-60,000 bales during the same time last year.

"Arrivals have thinned down due to anticipation of price rise and direct supply by local traders to mills. But, we are hopeful that the supply would smoothen very soon. However, prices would remain firm throughout the year," said a local trader.

Cotton prices are rising purely on domestic demand without any firm direction from the international market. Prices in the international market remained range-bound amid adequate supply.

China, meanwhile, offers a golden opportunity to the domestic cotton exporters following lower sales by the US. According to data released by the United State Department of Agriculture, the acreage under cotton dropped in the US for the December 2007 crop. Hence, the prices that were currently firm would remain upbeat through the rest of the year on the expected Chinese demand, said another trader.

The total cotton arrivals in Gujarat for the 2006-07 (June-April) cotton season are not expected to cross the 8.5 million bales mark, of which 8 million bales have already arrived.

Arrivals in Gujarat would remain thin throughout the rest of the season, said Manubhai Shah, director of East India Cotton Association. In the 2006 crop season, the state received a total of 9.3 million bales.

The question now is can India, which emerged as a long-term cotton exporter in the last two years, maintain its current growth level. J N Singh, textile commissioner, ministry of textiles, believes that India may retain its position as a long-term player in the export market due to rising domestic consumption.

Last year, the country exported a record 5 million bales. The industry experts said the figures would surpass this year. However, domestic demand will tighten its grip over the exports and the country is expected to follow China by importing cotton.

In 2005-06, the country had a closing stock of 72 lakh bales, which is expected to come down to 45 lakh bales this year. In 2006-07, cotton output is likely to touch 270 lakh bales compared with 245 lakh bales last year.

The domestic consumption of cotton would soon reach 225 lakh bales, said K F Jhunjhunwala, president of East Indian Cotton Association.