Cotton arrivals have picked up after a delay, indicating that production in India will be better this year though subdued demand may keep consumption down.
The Cotton Association of India (CAI), which represents various stakeholders in the trade, had pegged production in cotton year 2022-23 (October to September) at a paltry 303 lakh bales of 170 kg each in April. This was lower than the production of 312 lakh bales in the previous year, which was itself the worst output level in over a decade. The association attributed the fall in production to output declines in Maharashtra, Punjab, Telangana, Andhra Pradesh and Odisha.
The government-owned Cotton Corporation of India has, however, projected that production will touch 337 lakh bales in its revised estimate, better than the previous year’s level, but still below the 352 lakh bales of 2020-21.
"So far, we haven’t got any adverse reports on production from any region. CAI could have based its estimate on the slow arrivals. Usually the market sees 70 to 80 percent arrivals by March. But this time the flow of fresh cotton to the market was around 60 percent,’’ said Sanjay Kumar Panigrahi, CGM of the Cotton Corporation of India.
Arrivals seem to have picked up towards the end of April. "A section of the trade said the arrivals have been in the range of 45-47 lakh bales in April and a similar trend is expected in May and June,’’ said Pratik Gadia, founder and CEO of The Yarn Bazaar, a B2B online platform for yarn.
Consumption concerns
However, consumption is down and most manufacturers are operating at below 50 percent capacity due to the lack of demand. "The cotton industry is predominantly export- dependent, with 60 percent of the products shipped from the country. A dull export market has hit production. As a result, we may end up with higher closing stock,’’ Gadia said.
The last few months have seen a sharp fall in garment exports from the country. Apparel exports rose 1.1 per cent to $16.20 billion in FY23 from $16.02 billion in the previous year. But they fell below the target of $17.6 billion.
`"This was achieved despite the challenges of the Russia-Ukraine war, sluggish demand for apparel in major garment importing countries, stiff competition from other major apparel manufacturing countries, and volatility in raw material prices at the beginning of the year,’’ said Naren Goenka, chairman of the Apparel Export Promotion Council (AEPC).
The situation is not different in the case of Tiruppur, the knitwear hub of the country, where exports showed a marginal increase in terms of value. "Total exports reached over Rs 34,000 crore in FY23 from around Rs 33,000 crore in the previous year, though the quantity showed a decline,’’ said KN Subramanian, Tiruppur Exporters’ Association (TEA) president.
Price correction
Weak demand has pulled down cotton prices, which had escalated over 60 percent to Rs 100,000 per candy of 356 kg last year. Prices are now in the range of Rs 60,000 to 70,000 per candy, for different varieties. Apart from global problems, the high price of Indian cotton had also hit exports last year.
"The high cost has led to greater demand for non-cotton and blended products, which are comparatively cheap, especially from the fashion industry. Concern over cotton quality during the initial months of arrivals in the market, due to rains in November and December, is another factor that is encouraging this trend,’’ said Gadia.
Traders reckon that the coming months may see a gradual uptick in demand in both domestic and export markets. This may result in cotton imports remaining high. In cotton year 2021-22, cotton imports had touched 14 lakh bales, 4 lakh bales more than in the previous year, because of the decline in production. The current year is expected to see imports remain at around the same level.
The government has slashed the export estimate to 25 lakh bales from 43 lakh bales last year. Garment exporters are, however, optimistic about shipments in the coming year.
"We would like to opt a path of cautious optimism for this financial year as the global headwinds are still strong. With the support of the Government, the industry expects growth of 5-10 per cent in exports for 2023-24 as compared to last year,’’ Goenka said.
TEA also expects 20 percent growth in exports in FY24.
The industry is hoping the government will push through a free trade agreement (FTA) with the European Union, which could provide a level playing field for India with other countries from Asia.
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