Cotton prices to remain steady, even as demand continues to be sluggish

India's readymade garment exports, worth $16.2 billion in FY23, fell 14.6% in the eight months ending November FY24.

Cotton prices are likely to remain steady in the short term, despite a shortfall forecast for 2023-24 as demand continues to be sluggish.
Industry stakeholders reckon prices may rise after April as export demand is showing signs of revival.

Various estimates have predicted a 6-8 percent drop in cotton production in the current year.

But this won’t be a cause for worry as export demand till November FY23 has been poor. Domestic demand is also weak, with most mills not operating at full capacity.

As a result, cotton prices have stabilised around Rs 55,000 per candy (356 kg). Prices have dropped by around 10 percent from the level a few months ago.

Cotton production

Cotton Corporation of India (CCI) has projected a production of 316 lakh bales (170 kg each) in the 2023-24 marketing year (October to September) – a drop of around 6 percent from the previous year.

“So far, around 145 lakh bales have arrived in the market. The decline is expected more in the northern region, especially in Punjab. The output in Gujarat and Maharashtra has been good though late rains in the latter may cause a problem,’’ said Sanjay Kumar Panigrahi, CGM marketing, CCI. The corporation expects demand to be around 311 lakh bales.

Trade body projection

However, the trade body, Cotton Association of India (CAI), has pegged production for the year at 294.10 lakh tonnes -- an 8 percent fall from the 318.9 lakh bales it had predicted in the previous year on concerns of irregular weather conditions.

CAI has projected a higher import figure of 22 lakh bales, compared to 12.5 lakh bales last year to meet the shortfall. But mills feel the tepid demand and high import duty of 11 percent may keep imports to a lower level.

``The current cotton situation is comfortable as around 50 percent of the expected output has arrived in the market. Demand is sluggish now. But as requirement increases later, mills will have to resort to imports. We have requested for import duty exemption till October,’’ said K Selvaraju, secretary general of The Southern India Mills Association. He expects imports to be around 15 lakh bales.

Lack of sufficient orders and high prices had hit many mills in the first half of FY24. But a fall in prices have given them some respite now.

Industry feels import duty will be a deterrent as demand moves up ``The import duty of 11 percent is quite challenging, and it is way too high, given the fact that we are operating on a thin margin. The removal of duty will provide a level-playing field,’’ pointed out Umang Patodia, MD of GTN group of textiles.

Readymade garment exports
India’s readymade garment exports, which fetched $16.2 billion in FY23, declined by 14.6 percent in the eight-month period that ended in November FY24.

Besides the recessionary trends prevailing in the major markets of the US and Europe, the Ukraine-Russia war and the conflict in Gaza affected exports. Export earnings stood at $8.85 billion for the period. In FY23, the export was marginally higher than the previous year.

Now, the markets are showing signs of revival. ``Export orders have increased from the US after the New Year. We are expecting exports to improve in the last quarter. This could make up for the losses in the earlier months,’’ said Mithileshwar Thakur, secretary general of Apparel Export Promotion Council (AEPC).

Bangladesh is the biggest competitor to India now as other major garment- exporting countries, such as China and Vietnam, have shown negative growth. But Thakur believes once the free trade agreements (FTAs) with the UK and Europe are through, India will have a competitive edge in the market. ``We are hoping that the FTA with the UK will happen before Parliament elections in May,’’ Thakur said.

Exporters in Tiruppur, the knitwear hub of the country, are also experiencing a change from the sluggish trend in the past months. ``The order position has improved. This is the time for summer orders from the US, and, usually, the biggest chunk of shipments happen. The global recession trend seems to have eased now,’’ said N Thirukkumaran, general secretary of Tiruppur Exporters Association.

In FY23, exports from Tiruppur touched Rs 34,350 crore and the association is hoping to match that figure in the current year. He expects consumption to make a strong growth in the next fiscal year as economic conditions are turning favourable.