Monthly Prices Movement
Cotton prices traded with more of negative sentiments during the month of October in Indian markets mainly due to low buying activity.
The new crop arrivals which is continuing in the markets have curbed the major upside moves in prices during the month.
Buying activity was slow in the market during the month as the millers and spinners awaited large scale arrivals expecting fall in prices and improved quality.
Cotton production in India is estimated to increase close to 4% in the 2016-17 season (beginning from October 1) to 35.1 million bales, according to the Cotton Advisory Board (CAB). Cotton production in 2015-16 stood at 338 lakh bales.
CAB estimates India's overall shipment of Cotton in 2016-17 season at 5 million bales, down from 6.9 million bales in 2015-16.
CAB states that India's total area under Cotton reduced by 12% to 10.5 million hectares in 2016-17 from 11.88 million hectares in 2015-16. Area under Bt Cotton has fallen to 8.61 million hectares in 2016-17and area under non-Bt Cotton increased from 1.19 million hectares in 2015-16 to 1.89 million hectares in 2016-17.
Consumption of Cotton by mills is estimated to remain unchanged at 27.5 million bales and the closing Cotton stock is projected to be 4.8 million bales in 2016-17, up from 4.3 million bales in the previous year.
India Cotton output is projected at 26.5 million bales, up marginally from 2015/16 from a rebound in yield, which is expected to be offset from a 10% reduction in Cotton area, as per U.S. Department of Agriculture (USDA). India's Cotton stocks in 2016/17 are projected at 11 million bales.
India shipped around 6.9 million bales of Cotton during season October-September 2015-16, according to industry data.
A higher yield this season is expected to be procured by States of North India despite low sowing acreage and production is expected to increase by 24.3 percent at 43.9 lakh bales compared to previous year at 35.3 lakh bales, as per tour report released by Edelweiss.
India's top Cotton buyers were Pakistan, Bangladesh, Vietnam, China and Indonesia during October-July marketing season (2015-16), according to commerce ministry. The imports were at 2.715 million bales, 2.074 million bales, 0.664 million bales and 0.646 million bales respectively.
India's Cotton exports to China declined sharply by nearly 98.57 percent and reached 48 tonnes during September. Exports were down by 69 percent at 56183 tonnes from January to September.
India's Cotton exports to Vietnam in the month of September totalled 1,032 tonnes ($0.86 million). During the period from January to September, imports of Vietnam from India recorded at 90,973 tonnes, valuing $131.3 million, as per Customs data.
Cotton yarn exports from India declined 11.58% in value terms and 4.44% in terms of volume during April - June this year compared to the same period last year, latest data from the Southern India Mills’ Association showed.
Exports to China, the main buyer of Indian Cotton yarn, dropped to 99.09 million kg during the first three months of 2016-17 financial year from 149.66 million kg recorded in the same period last year.
India's Cotton imports from US increased over eight times to 4.79 lb (52,000 bales) during the first two months of the US Cotton marketing year (Aug-Jul), according to U.S Department of Agriculture (USDA).
India, the world’s largest producer of Cotton, started importing large amounts of raw Cotton in recent months after domestic prices ruled much higher than global rates.
The Cotton Advisory Board expects India to import 15 lb in the Cotton year ended last month but the industry estimates it to be higher, at about 18-20 lb.
Cotton Association of India (CAI) has urged the government not to go ahead with its plans to create a buffer stock of Cotton under the Cotton Corporation of India. CAI stated that the move, if implemented, would prove to be a regressive step for the Cotton sector.
China's state reserve may auction 2.5 million tons of Cotton next year to meet their growing supply deficit. In the auction which took place between May-September, the State Reserve sold around 2.6 million tons of Cotton.
China's government left 2017 low tariff import quotas for Cotton unchanged from 2016 at 894,000 tons, the National Development and Reform Commission said on its website. The low-tariff quotas are sanctioned under China's membership of the World Trade Organisation.
Cotton prices in the near term will remain flat. However, we can expect correction in Cotton prices during the month when supply will be at the peak level.
The spinners and mills are expected to start their bulk buying during the month as soon as the activity regains after the Diwali holidays.
The crash in Cotton prices over a month, due to a better than expected crop and increased arrivals, is likely to make the exporters to look at signing of contracts for future shipments. The benchmark Shankar-6 variety has fallen 19 per cent in a month, to Rs 10,629 a quintal.
Exporters are waiting for a further fall in local prices before they initiate the signing of contracts with traders for assured supply, before dealing with foreign buyers.
Cotton arrival normally picks up only in November every year and the daily arrival could touch 200,000 bales by end-November. Due to late harvest expected in Gujarat and Maharashtra, arrivals will also continue during December and January in the markets which may weigh on the prices.
Traders anticipate at least Rs 700-1,000 a tonne of further fall in price by mid–November, when arrival of the new season crop hits mandis in full swing.
Cotton procurement by government may boost up the Cotton prices this year as market is already facing tighter supply situation owing to lower carryover stocks whereas production is expected to be lower than below five year average.
As per ICRA research, Cotton availability in India is likely to remain tight in calendar year 2017 and the prices to remain higher on a year-on-year basis during second half of FY2017.