Yarn exporters in the northern region believe the export of additional two million bales (1 bale=170 kg) of cotton, allowed on Monday, may have a cascading effect on availability of the commodity.
“The additional export may have an impact on exporters, as well as the domestic manufacturers of yarn,” said J L Sharma, managing director, Vardhman Group. He added exporters might find it more difficult as the market would become more competitive after the cost push. Domestic suppliers, according to him, may absorb the price increase in the short run. But, it depends on how much export actually gets materialised. The industry as a whole may face supply constraints at the end of the season (August and beginning of September). The stock to usage ratio during this time may be adversely effected.
A senior member of Northern India Textile Manufacturers Association (Nitma) said the availability of cotton was not much and the Cotton Corporation of India (CCI) was not aggressively buying from open market due to the prevailing price, higher than the government’s minimum support price (MSP).
CCI has already been instructed to procure one million bales of cotton to build a buffer stock immediately. However, this is creating confusion as in the first week of April, the government had asked CCI to intervene in the market for commercial operations to build up reserves of 2.5 million bales till arrivals in the new cotton season (2012-13). This has been necessitated by the fact that the textile industry, affected by a slowdown, is unable to carry stocks beyond 15 days, whereas the mandatory carryover stock requirement is six million bales. CCI was expected to purchase at the prevailing market price, approximately one million bales per month for the next two months. This buying for reserves never happened as the government had not approved any budget for CCI and on Monday’s announcement by the ministry of textiles that CCI has been mandated to build a buffer stock of one million bales each to meet any exigency during June, July and August, said a Mumbai-based trader. This gives an impression that the government has cut the buffer stock target from 2.5 million bales to a million bales and buying, if approved in time, should start from June, he said.
Meanwhile, after on Monday’s decision to lift the ban, cotton prices went up by Rs 1,000 and closed above Rs 35,000 a candy (1 candy = 356 kg). On the Multi Commodity Exchange, cotton futures closed 2.45 per cent higher to Rs 17,530 a bale.
“The price is expected to move up further by Rs 2,000-3,000 a candy in the next few weeks, as the government has allowed fresh exports,” said Arun Dalal, an Ahmedabad-based cotton trader.
Meanwhile, due to uncertainty regarding exports and frequent changes in the government’s policy, the area under cotton is likely to shrink this year in most of the growing states as farmers shift to alternative crops like guar and oilseeds fetching better price.
Another exporter added if the government actually wants to benefit the farmers, it should revise the MSP. The industry, he said, purchased cotton between Rs 34,000 and Rs 40,000 a candy, but farmers get less than that. It is only the traders who benefit from the increase in export quota as they have holding capacity and farmers do not hold stock.
“Exporters are already sitting on high inventory and in the next two weeks, they will export it and will not look at procuring cotton from the spot market,” said Sirishbhai Shah, a Mumbai-based exporter.
