The spinning sector is in a paradoxical situation caught between the steep rise in the price of the domestically available cotton and the option to import the white fibre from the international market.
While a section of players voiced anxiety over soaring cotton prices, quality-conscious mills have quietly opted to import and many more gearing up to source the white fibre from the international market.
International cotton price, for one, is cheaper by at least ₹2,000 a bale, and cotton imports, at present does not attract any duty.
Notwithstanding these, the imported fibre, mills say, is better quality wise, enhances yarn realisation by 2-3 per cent and more importantly, can be availed by discounting of bills (LC benefit).
While price volatility seems to have shaken the user industry, industry insiders feel that the domestic cotton price will soften to international level in the next 10-20 days, as there is no dearth in availability of domestic cotton.
Cotton balance sheet
The Cotton Advisory Board had, early this year, estimated the 2015-16 production at 352 lakh bales and imports at 11 lakh bales. With mills eyeing the import route more aggressively now than over the past months — fearing reported drop in domestic production by around 10 lakh bales on the one hand and towards taking advantage of cheaper, quality (imported) raw material on the other — the estimated import could increase by 4- 5 lakh bales this cotton season.
And, in line with the foreseen decline in cotton production, the consumption also is expected to drop by 3-4 lakh bales (compared to the CAB estimate of 380 lakh bales) with the mills going slow on cotton consumption and switching to finer filament and manmade fibre.
Indian cotton position, therefore, is expected to be comfortable with the total supply pegged at 415 lakh bales (inclusive of 52 lakh bales - opening stock), consumption at 380 lakh bales and closing inventory of 35 lakh bales.
And, industry insiders do not anticipate the closing stock during the 2015-16 season to be less than the CAB’s estimate of 35 lakh bales.
The ruling variety — Shankar 6 — for instance, was quoting a maximum of ₹34,000 a candy in January this year before sliding south, albeit marginally the following two months, only to pick and ride north from April.
From a level of ₹34,700 a candy in April, 2016, it increased to ₹36,800 in May before touching a high of ₹40,000 during the first fortnight in June.
Since India is the largest consumer of cotton, the sudden increase in the price of domestically available white fibre has caught international attention. International cotton prices, sources say, are inching up, yet cheaper compared to Indian cotton.
Statistics reveal that the use of domestic cotton by China and Pakistan has slid from a level of 7,838 million kg in 2012-13 to 7,076 million kg in 2015-16 and 2,341 million kg to 2,232 million kg respectively.
On the other hand, consumption has increased in countries such as India from 4,736 million kg in 2012-13 to 5,280 million kg in 2015-16, Turkey – from 1,317 million kg to 1,404 million kg, Bangladesh – from 1,023 million kg to 1,241 million kg and Vietnam from a mere 490 million kg in 2012-13 to 1,023 million kg in 2015-16.
Besides drop in consumption, China’s cotton import has also nosedived from 4,426 million kg in 2012-13 to less than 1,000 million kg this season, whereas Vietnam (which is largely dependent import) has almost doubled its cotton import volume — from 525 million kg to 1,045 million kg and Pakistan — from 392 million kg to 675 million kg.
Trade sources say that Pakistan has imported huge volumes from India. Ending stocks seem comfortable at this juncture with China at 13,563 million kg at the end of 2015-16 season, India at 2,403 million kg, Brazil at 1,477 million kg and Pakistan at 550 million kg.