There is more than enough cotton in India to meet mill demand, according to Jon Devine, a senior economist at Cotton Incorporated.
He was referring to recent media reports declaring that some regions are running out of the raw material, which dispute official figures citing a slowdown in exports. He added, “Any scarcity that exists may be resolved as more of the cotton purchased by the government makes its way onto the market.”
Earlier this month, Confederation of Indian Textile Industry (CITI) Chairman Prem Malik wrote to Textile Minister Santosh Kuman Gangwar, complaining that the state-run Cotton Corporation of India (CCI) was sitting on a large quantity of cotton and creating an artificial shortage in the states of Telangana, Andhra Pradesh and Maharashtra that’s forcing local mills to source from afar and driving prices up.
India, the world’s largest producer and second-largest seller of cotton, has a government support program in place that maintains and enforces a guaranteed price level for its producers (known as the minimum support price or MSP) by purchasing and stockpiling the fiber so as to help prevent domestic prices from crashing.
“Price levels guaranteed in India vary according to quality, but the general level is near 70 cents per pound for the most popular varieties,” Devine explained.
A global surplus (world cotton stocks are projected to be 110.1 million 480-pound bales by the end of the season, according to data from the U.S. Department of Agriculture) combined with sluggish demand from China has led to a decline in exports (USDA forecasts a drop of 58 percent year-over-year) and a subsequent slip in prices.
With prices falling below MSP levels, the CCI was spurred to actively enforce guarantees by purchasing the equivalent of nearly seven million 480-pound bales from domestic producers this season. The agency then stockpiled the fiber from November to March and last month began auctioning cotton at prices near MSP levels. However, “the prices being offered have not been low enough to garner much offtake by Indian mills,” Devine said.
Now the Cotton Association of India (CAI), the Southern India Mills Association (SIMA) and the Cotton Textile Promotion Council (TEXPROCIL) are urging the CCI to aggressively offload its stash, and Devine predicts this will happen sooner rather than later because of the country’s limited warehousing capabilities.
“Recently, the chairman of the CCI announced that a new set of auctions, which will be more open to international buyers, will be put into operation soon,” he said, adding that the government is becoming more active in terms of its efforts to move cotton. This could be interpreted as the state’s stab at offloading inventory without having to lower prices much below the MSP rates it was purchased at, which isn’t likely to appease most domestic mills.
“A major question for the local and global cotton market is whether increasingly aggressive measures to move cotton from government hands include reductions in auction prices,” Devine said.