Cotton prices remain firm on strong export demand

With an opening stock of about 4.5 million bales at the beginning of the 2016-17 season, the Cotton Association of India (CAI) has projected a total demand of 29.5 million bales for the year, against 38.2 million bales last year. CAI’s estimates put available the surplus at 11.2 million bales.

However, looking at the trends in cotton arrivals at mandis, as much as 70 percent of the crop is believed to have already hit the market. Traders put total arrivals so far at 24.4 million bales.

As arrivals rose cotton prices indicated a softening trend from their initial peak levels. But prices are again on an uptrend after the temporary dip.

The MCX March cotton contract dropped by 2.37 percent to ₹21,060 per bale on March 14 from the peak of ₹21,550 on March 8, and recovered to ₹21,400 per bale on Thursday.

Exports are likely to be around 5-5.5 million bales with the main destinations being Vietnam, Bangladesh and Indonesia. This is expected to further fuel the bullish sentiment.

But China a major buyer of Indian yarn at present, the yarn pipeline is empty, hence they expect more yarn demand from China this year. So, mill consumption in India will be more than expected, which will further put pressure on the prices, said Arun Dalal, a leading cotton trader.

Ritesh Kumar Sahu, Fundamental Analyst, Agri Commodities, Angel Broking said that expectations of higher cotton demand from China and forecast of an El Nino during the later part of the current month may keep cotton prices higher.

Cotton prices on the domestic commodity exchanges have recovered nicely in the last two trading sessions, on Wednesday and Thursday, after correcting last week from their highest levels for the season, due to technically driven trades, said Sahu.

CAI president Nayan Mirani said that farmers continue to realize a better price for their produce since cotton prices have remained firm. Cotton arrivals are in full swing now and the gap of arrivals as compared to last year has narrowed considerably in the preceding period. Farmers have got prices as high as ₹6,000 per quintal for raw cotton (kapas).

According to trader sources, prices at procurement level may scale up to touch ₹6,500 per quintal, while processed cotton prices are expected to jump to levels as high as ₹48,000 per candy of 356 kg even as the cotton trade body maintains a higher crop size of 34.1 million bales (each of 170 kg) than last year’s 33.8 million bales.