Putting off cotton buying only solution to foresee price lower in near future by textile mills

Textiles mills and spinners has decided put off buying cotton and has taken to wait-and-watch approach to stocking the commodity, as they feel that when new crop arrives in a couple of month, supply will improve and prices will drop.

According to International Cotton Advisory Committee (ICAC) report though the monsoon has arrived in India, the yield is likely to suffer in some places as the volume of precipitation has varied widely. The committee has estimated India’s cotton crop will drop by about 10 per cent this year. ICAC and the US department of agriculture (USDA) have pegged India’s 2014-15 cotton production at about 35 million bales.

In 2014-15, there will be a sharp decline in cotton exports, primarily driven by a 26 percent fall in imports by China at 2.2 million tonnes. It is likely India’s exports will decline to 800,000 tonnes, less than half the exports in 2013-14.

As per ICAC report, the Chinese government will close 2013-14 with sales of 2.3 million tonnes (mt) of cotton, 37 per cent of the 6.3 mt purchased this season. As this is the second successive year in which total purchases by the government exceeded sales, government stocks have increased and are estimated at 11.4 mt. Stocks in China stand at 11.9 mt. Global stocks, excluding China, have risen six per cent to 8.6 mt, the most since 20070-08, when it stood at 8.8 mt, and this is weighing on prices.

The fall in exports is likely to make good the drop in production and, as global demand is slack, demand for yarn could also fall.

According to S P Oswal, chairman and managing director of Vardhaman Group, yarn spinners have chosen to wait, as stockpiling has already started due to a fall in exports. They have sufficient cotton stocks to last till the next cotton season starts; they will only start buying cotton from the market from October, as the price of cotton will fall further till then.

Oswal expects cotton yarn exports to be 20-25 per cent lower than last year, as China, the largest importer of Indian cotton yarn, has cut purchases. Last financial year, exports of cotton yarn stood at 1,414.53 million kg, while in 2012-13, it stood at 1,109 million kg.