Cotton prices to remain under pressure in 2016: Ind-Ra

MUMBAI: Domestic cotton prices may remain under pressure in the coming few months due to many international as well as domestic reasons, an India Ratings and Research (Ind-Ra) research report said on Tuesday.

According to report the Chinese subsidy on cotton in China is creating a disadvantage for the Indian cotton from the price point of view. This combined with a lower demand from spinning mills is set to keep the domestic prices under pressure.
"Although Bangladesh, Pakistan and Vietnam have replaced China with India as a supplier, volumes are picking up at a slow pace, and are unlikely to match Chinese demand," said Neermoy Shah, senior analyst, India Ratings & Research

In CY17 (CY refers to International Cotton Year, which commences from August and ends in July), the agency expects cotton prices to stay firm. The domestic prices had declined in CY16 in line with Ind-Ra’s expectations and are expected to remain under pressure in calendar year 2017 as well. The operating margins will stay in the 1 per cent-2 per cent range for traders, but the profit after tax margins may improve as sector companies reduce stocks and focus on receivables management. International cotton prices however will remain sensitive to the release of cotton by China from its cotton reserves, which Ind-Ra estimates to be around 59 per cent of global cotton stock at FYE16. Chinese cotton reserves will directly impact the quantum of imports in that country and consequently the global stock levels outside China, according to the research.

The local cotton production in Pakistan and Bangladesh is unable to keep pace with the increasing demand for apparels from these locations, providing opportunities to Indian exporters. However in view of China reducing imports significantly and the moderating demand from the Indian spinning mills industry, Ind-Ra believes that the demand for cotton will increase at a marginal rate in CY17 and the prices are unlikely to increase materially from the current levels," the report added.