‘Speculation plays big role in Indian raw cotton prices’

September 30, 2013 - India

Indian raw cotton prices, particularly the Shanker-6 variety has increased from Rs. 39,000 to Rs. 55, 000 for candy (356 kg) in last two months. According to industry representatives, the cotton prices in the country are driven by speculations rather than strong demand and fundamentals.

Mr. KK Agarwal, president of Northern India Textile Mills’ Association (NITMA), told fibre2fashion, “The main reason for increasing cotton price is hoarding of cotton by speculators. Most of the spinning mills are having below one month stock and their panic buying is increasing cotton prices.”

“Stocks to use ratio of cotton in the country should be minimum 3 months. Otherwise, any delay in crops due to factors including rains will create an artificial scarcity and cotton prices would go up,” he opines.

In a similar vein, Dr. A Sakthivel, president of Tirupur Exporters' Association and the chairman of Apparel Export Promotion Council (AEPC), says, “Speculations play a major role in determining the price of Indian cotton.”

“For example, in the beginning of 2013, there was a speculation that there will be supply constraint in international market as the US, which is the largest producer of cotton, had low production on account of bad weather and also due to the Chinese policy of stocking cotton by way of higher minimum support price (MSP) for the future textiles activity, and this led to an increase in cotton prices in the first half of this year,” he informs.

Talking about the other factors affecting the price of Indian cotton, Mr. Agarwal says, “Now cotton prices are also governed by Cotton Purchase Policy of China under which the Government of China is stocking cotton, and its present stock is estimated to be about 50 percent of the world cotton stock.”

According to Dr. Sakthivel, monsoon, currency fluctuations, Government Policy on exports and imports, etc are the factors responsible for the increase in cotton prices of India.

“If we analyze the price and production pattern of Indian cotton over the last three years (2009-12) there is no procurement of cotton crop and other agriculture related benefits which keep the prices at a particular level,” he mentions.

When asked about the prospects of Indian cotton, he says, “After June 2013, good monsoon in India led to the increase in production of cotton, this will provide higher supply of cotton in domestic as well as international markets.”

“Hopefully, when the new crop comes to the market next month, we can source for domestic use at lower price.  The good news is we had good monsoon and good cotton production this year,” he concludes.