Cotton Arrivals Begin, Prices Remain Under Pressure

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All India daily cotton arrivals are reported approximately at 12000-18000 bales ( for new crop). Majority of cotton is coming from Northern India.

Weather & crop estimates
Weatherwise, light to moderate rain was reported to have spread all over cotton growing regions across India. As per weather department update, monsoon withdrawal should be effective now onwards but  rains can continue for a few more days, and rains are expected in October month as well. Some crop damage has been reported from Madhya Pradesh, but no statistical numbers are forthcoming yet. So it would be too early to comment on damage percentage as a result of rains. Rains in September and October can affect the arrival pace and somewhere some quality concern can be seen, but this all will depend on intensity and frequency of rains.

Indian cotton prices trade easy
Indian cotton prices are trading easy with prospects of bumper crop, increasing daily arrivals and financial crunch in the market. Spinning mills have not been able to build up cotton inventories yet, as the yarn market remains sluggish.

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Recently Indian government announced reduction in corporate taxes, which will certainly attract FDIs and should be beneficial to the current industries. We will have to watch how textile industry takes this into consideration, certainly this is good relief for industries but implementation of same will give a clearer picture about how effective it is.

ICE cotton remains under pressure
US-China trade war continues with no clear direction emerging, keeping ICE cotton under pressure. Last week on Thursday ( 12.09.2019), US export weekly sales were not so attractive – 85000 running US bales for 2019/2020 were up 14% from the previous week, but down 38% from the prior 4-week average.

In view of good US crop and no demand from China for US cotton, US cotton farmers and traders will have to sell their cotton in other markets and for that US will have to trade lower. This will make Indian cotton non-competitive in International markets due to MSP prices in India.

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CCI’s sourcing strategies crucial this season
This year, CCI’s sourcing strategies will be very crucial to give direction to market. Till now there is no clarity on when CCI will enter in the market to buy at MSP, how aggressively they will buy and what would be the selling strategies of sourced cotton, etc. Recently CCI has indicated that that it is prepared to buy about 10 million bales at MSP.

CCI will have to get active and buy good amount of Indian cotton, failing which Indian cotton will trade lower than MSP. This will create fewer export possibilities and can also give immediate support to Indian spinning mills. Lower cotton prices will make Indian yarn competitive. As of now other origins like US, Brazil, East Africa for its nearby shipments (Oct-Nov 19) are not that attractive to import.

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Ban on trade with Pakistan took out around 1-1.2 million cotton bales from our expected export numbers for the crop year 2019-20. That will directly be a surplus in India.

Meanwhile, the Indian government needs to come up with some export promotion policies for the textile industry, to improve the current dull scenario.

(Vimal Verma is a Cotton Trader)

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