Cotton Prices Stay Firm On Face Of Mounting Demand

Market Intelligence

Cotton Prices Stay Firm On Face Of Mounting Demand

India’s local cotton prices continued with its robust trend throughout March. Fibre prices gained as demand was healthy and supply has been limited. Demand for the fibre has improved as local spinning mills have continued with their procurement and yarn demand has gained. Similarly, cotton traders have also joined in expecting stronger fibre prices throughout the season. Indian spinners have experienced better yarn demand from both domestic and overseas markets. Downstream textile factories have started operations as the effect of demonetisation has eased and demand for yarn has improved.

Also, yarn demand from China has improved lately after that country’s cotton auction prices opened at a hefty premium compared to Indian local cotton prices. So, better demand has resulted in stronger domestic prices in March. On the supply side, total cotton arrival in the country till date is estimated to be around 25 million bales and current arrival is estimated to be between 170,000- 180,000 bales per day across India. However, many farmers are holding sizable crop which is resulting in limited supply and stronger prices.

To counter the situation, South India based mills have booked over 1.5 million bales of cotton from overseas markets. Thus, fibre prices in the domestic market should not move further up as supply should be enough to meet the demand. Current domestic price of benchmark Shankar-6 variety was recorded at around Rs. 43,100 per candy (355.6kg, on 29^th March 2017) which is higher by Rs 300 per candy compared to the mid-March price.

On the global front, cotton prices remained firm as well. Better demand and export trade kept the momentum on for cotton. Prices fluctuated within a narrow range in March second half and expected to remain firm in short term considering the current scenario. The benchmark A index is hovering well above 85 cents mark and even breached 87 cents mark. The key data on the crop from USDA’s latest forecast indicates that world cotton production will be 105.7 million bales up from the earlier estimates to 104.4 million bales (of 480 lb, last season’s production was 96.7 million bales). Consumption estimates increased to 112.4 million bales from earlier forecast and ending stock revised upward to 90.5 million bales from earlier figure of 89.9 million bales.

To look at the price trend during March second half, ‘A’ index started moving upward and crossed 87 cents per pound mark but towards the end of the month the index marginally declined and recorded at 86.85 US Cents on 28^th March. ‘A’ Index was at 78.55 US Cents in December 2016 end and was at 69.55 US cents per pound in December 2015 end.

On the yarn front, cotton yarn prices gained as fibre prices have moved up. Also, stronger INR (against USD) has compelled the suppliers to hike prices. Better demands from overseas markets have supported the price hike as well.

Cotlook ‘A’ Index: 86.85 (As on 28^th March 2017)