India Cotton Trader Boosts Buying to Help Suffering Farmers
Pratik Parija Bloomberg March 6, 2020
(Bloomberg) -- An Indian state-run cotton buyer is boosting purchases from farmers to prevent them from making distressed sales as the spreading coronavirus curbs demand in key export markets and causes prices to slump.
Cotton Corp. of India Ltd. has bought about 7.5 million bales (170 kilograms each) from farmers so far in 2019-20, and will buy more if growers offer supplies, Chairman P. Alli Rani said in a phone interview.
Transport of the fiber across China is being delayed, and concern is mounting that factory closures will weigh on demand. Logistical issues mean mills are finding it hard to take delivery of cotton and ship yarn products to buyers.
Cotton futures in New York have fallen about 12% from their Jan. 13 high, while local Indian prices have dropped 7% since Jan. 22.
For Arun Sekhsaria, a top executive at one of the biggest cotton exporters, the virus has meant that he can’t risk selling abroad, though he notes that the support of the state buyer means cotton producers are better off than most.
“I am just keeping quiet,” said Sekhsaria, managing director of D.D. Cotton. “I am not booking any cargoes for exports as I can’t travel overseas now if there is any issue with the shipments for any reason. Everything is uncertain and nobody knows where prices will go.”
Cotton Corp.’s purchases are its biggest on an annual basis since 2014-15, when it bought 8.7 million bales. The company, which acquires fiber at government-set minimum prices, bought about 30% of total market arrivals so far this year and is currently purchasing about 50% of daily arrivals, Rani said.
The company has separately bought about 8,000 bales of long staple cotton from ginners at market rates this year through its commercial business, she said. It bought 7,700 bales in 2018-19, according to Cotton Corp.
“All my infrastructure has been engaged in minimum support price operations,” Rani said. “I am not really concentrating on commercial purchases.” About 65% of total expected production has already arrived in the market, with the remainder set to arrive in the next two to three months.
Read: Coronavirus Causing ‘Big Slowdown’ in Chinese Cotton Factories
Demand for Indian cotton has fallen from most buyers, including Vietnam and China, Sekhsaria said. That leaves Bangladesh as its only export option, and the nation may buy as much as 2.5 million bales in 2019-20, he said.
The current domestic cotton price makes it attractive as it’s lower than the government-set minimum support price, said Vinay Kotak, a director of Kotak Commodity Services Pvt., one of India’s biggest cotton exporters. “Imports are also becoming costlier due to a depreciation in the rupee.”
Some cotton ginners will lose money because of their expensive stockpiles, Kotak said. “We are seeing a new low every day. There is still uncertainty in the market. If the virus settles, the prices will shoot up.”
“International prices are falling because of fear psychosis,” Kotak said. “We are yet to start business with Chinese buyers.”
Cotton, yarn prices fall as coronavirus brings exports to China to a halt
Indian exporters aren't pursuing the Chinese market either, as travel to that country to address quality or quantity issues post shipment will be difficult
Dilip Kumar Jha & T E Narasimhan | Mumbai/Chennai Last Updated at March 6, 2020
Cotton yarn lost 2-3 per cent over the last one month, while synthetic yarn declined by 4-5 per cent during the past one month, following a fall in crude prices.
ALSO READ
Coronavirus prompts India's top cotton trader to stop sales to China
Cotton and yarn prices have declined by up to 10 per cent during the past one month on a domestic supply glut that emerged after exports to China came to a grinding halt. The cessation of shipments to that country was caused by the lockdown of shops and factories there, following the coronavirus outbreak.
Raw (unginned) cotton in the Gondal (Gujarat) market shed almost 10 per cent to trade at Rs 4,280 a quintal on Wednesday from a level of Rs 4,755 a month ago. Cotton yarn lost 2-3 per cent over the last one month, while synthetic yarn declined by 4-5 per cent during the past one month, following a fall in crude prices.
Atul Ganatra, president of Cotton Association of India, said globally cotton yarn prices have dropped to 60.50 cents on the Intercontinental Exchange on February 28 from 71.5 cents. This has also impacted exporters margins.
The lockdown in China of retail shops and factories has hit India’s cotton and yarn exports hard with shipments came to an abrupt halt. “India’s cotton and yarn exports to China have halted due to lack of orders from there. Even Indian exporters have not evinced any interest in pursuing with export orders. In case any quality or quantity issue arises after shipment, travelling to China for clearing the cargo will be difficult,” said Arun Sakseria, a city-based cotton exporter.
Price of cotton and yarn is taking a beating due to poor sentiment in the market due to the outbreak of coronavirus in China and deterioration of quality in the present kapas arrivals.
Looking at the decline in cotton prices, the government owned Cotton Corporation of India (CCI) has offered a discount of Rs 3,200-5,000 per candy (1 candy = 356 kg) for old stock purchased in bulk.
The decline in raw material prices is likely to benefit textile mills and their profit margins may go up in the coming quarters.
Indian exporters aren't pursuing the Chinese market either, as travel to that country to address quality or quantity issues post shipment will be difficult
Dilip Kumar Jha & T E Narasimhan | Mumbai/Chennai Last Updated at March 6, 2020
Cotton yarn lost 2-3 per cent over the last one month, while synthetic yarn declined by 4-5 per cent during the past one month, following a fall in crude prices.
ALSO READ
Coronavirus prompts India's top cotton trader to stop sales to China
Cotton and yarn prices have declined by up to 10 per cent during the past one month on a domestic supply glut that emerged after exports to China came to a grinding halt. The cessation of shipments to that country was caused by the lockdown of shops and factories there, following the coronavirus outbreak.
Raw (unginned) cotton in the Gondal (Gujarat) market shed almost 10 per cent to trade at Rs 4,280 a quintal on Wednesday from a level of Rs 4,755 a month ago. Cotton yarn lost 2-3 per cent over the last one month, while synthetic yarn declined by 4-5 per cent during the past one month, following a fall in crude prices.
Atul Ganatra, president of Cotton Association of India, said globally cotton yarn prices have dropped to 60.50 cents on the Intercontinental Exchange on February 28 from 71.5 cents. This has also impacted exporters margins.
The lockdown in China of retail shops and factories has hit India’s cotton and yarn exports hard with shipments came to an abrupt halt. “India’s cotton and yarn exports to China have halted due to lack of orders from there. Even Indian exporters have not evinced any interest in pursuing with export orders. In case any quality or quantity issue arises after shipment, travelling to China for clearing the cargo will be difficult,” said Arun Sakseria, a city-based cotton exporter.
Price of cotton and yarn is taking a beating due to poor sentiment in the market due to the outbreak of coronavirus in China and deterioration of quality in the present kapas arrivals.
Looking at the decline in cotton prices, the government owned Cotton Corporation of India (CCI) has offered a discount of Rs 3,200-5,000 per candy (1 candy = 356 kg) for old stock purchased in bulk.
The decline in raw material prices is likely to benefit textile mills and their profit margins may go up in the coming quarters.
“Raw material costs have started moderating due to the outbreak of coronavirus which has impacted demand / production in China. Disruption in supply chain or production of polyester yarn in China is likely to provide greater export opportunities to Indian polyester manufacturers later,” said Madhu Sudhan Bhageria, chairman and managing director, Filatex India Ltd. In the Budget last month, the government had removed anti-dumping duty on purified terephthalic acid (PTA), a raw aterial for synthetic yarn.
The abolition of anti-dumping duty on key raw material input PTA has changed the landscape of synthetic textile manufacturers. The Indian textile industry has been stagnating in spite of the slowdown in China.
According to Icra, the coronavirus outbreak has started exerting pressure on yarn realisations, which have corrected by 2-3 per cent since the beginning of February 2020. This follows a brief recovery seen in India’s cotton yarn exports in the month of January 2020 when the exports touched an estimated 100 million kg, in line with India’s historical monthly average, following a weak performance for nine consecutive months earlier.
The domestic cotton spinning industry is highly dependent on exports, particularly to China, with around 30 per cent of the cotton yarn produced in the country being exported, and China accounting for nearly one-third of the exports in recent years.
Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, Icra, said, “Even though domestic cotton fibre prices continue to be competitive vis-a-vis international cotton prices at present with a price spread of about 4 per cent (down from 9 per cent in Feb-20), a further correction in international cotton prices amid demand-side uncertainties could render domestic spinners uncompetitive in the international markets, similar to the situation which was witnessed in H1 FY2020.”
For synthetic yarn, Raw material cost has started moderating because the outbreak of coronavirus is likely to impact demand for polyester yarn in China, which accounts for around 65 per cent of global demand. As a consequence, the price of PTA, a key raw material that accounts for more than half of the sales price of polyester yarn, is expected to be under pressure in the near term.
The abolition of anti-dumping duty on key raw material input PTA has changed the landscape of synthetic textile manufacturers. The Indian textile industry has been stagnating in spite of the slowdown in China.
According to Icra, the coronavirus outbreak has started exerting pressure on yarn realisations, which have corrected by 2-3 per cent since the beginning of February 2020. This follows a brief recovery seen in India’s cotton yarn exports in the month of January 2020 when the exports touched an estimated 100 million kg, in line with India’s historical monthly average, following a weak performance for nine consecutive months earlier.
The domestic cotton spinning industry is highly dependent on exports, particularly to China, with around 30 per cent of the cotton yarn produced in the country being exported, and China accounting for nearly one-third of the exports in recent years.
Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, Icra, said, “Even though domestic cotton fibre prices continue to be competitive vis-a-vis international cotton prices at present with a price spread of about 4 per cent (down from 9 per cent in Feb-20), a further correction in international cotton prices amid demand-side uncertainties could render domestic spinners uncompetitive in the international markets, similar to the situation which was witnessed in H1 FY2020.”
For synthetic yarn, Raw material cost has started moderating because the outbreak of coronavirus is likely to impact demand for polyester yarn in China, which accounts for around 65 per cent of global demand. As a consequence, the price of PTA, a key raw material that accounts for more than half of the sales price of polyester yarn, is expected to be under pressure in the near term.
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