India: Textile units smile as cotton rates slide

NAGPUR: The textile industry seems to be having the last laugh as cotton prices plummeted to record low in the international market on Thursday having its impact at home the next day. A bullish trend in the commodity's prices last year had left this sector harried, which in 2011-12 lobbied for the rates to come down. Exports were banned in March to bring down domestic rates. Last week, when the ban was lifted, it was with strict quantitative restrictions. The brief upswing was again reversed as the traders eventually saw the fine print of the notification.

In a week after the ban was supposed to have been lifted, prices of lint (processed cotton) came down by over Rs 700-1000 a tonne touching Rs 34,000 a candy. There was another jolt with rates falling by Rs 1000 in a day to rule in the range of Rs 33,000 to Rs 27,000 a candy in domestic market on Friday. This was impact of the record fall in US cotton futures to 81 cents a pound-- a reduction of 1.49 cents.

Global prices fell after US department of agriculture (USDA) released a report forecasting the global closing stock of 2012-13 at 73.75 million bales as against 66 million bales in 2011-12. The report also predicted a fall in Chinese imports in the coming year. Low rates have hit farm incomes in US too.

A ban on exports from India had increased international rates which come down due to the latest USDA report. Opening up of exports last week had a minor impact on the global trends too, sources said.

The impact was not as severe on raw cotton prices that only fell by a couple of hundreds touching Rs 3900 to Rs 3800 a quintal on Friday. However, arrivals from farmers have come down to negligible levels with sowing just a month away. With farmers having already suffered losses due to bearish trend, further worsened by ban on exports, this time it was traders' benefit.

The ultimate gainer is textile sector, say sources in business. Had the ban, or quantitative restrictions, not been there the rates in India would not have fallen as much. Although US prices on Friday fell due to different reason, scene in India would have been different if exports were allowed without any riders, said Raghav Ahuja of M/s BRA Cotton Mills Private Limited in Delhi.

Vedikar Narevekar, a commodities analyst at Angel Broking, said with low sowing expected in coming season the rates are expected to improve. Cotton exports were opened with a condition that no exporter could get a permit to ship more than 10,000 bales at a time. As expected it started bringing down the rates, which fell by around Rs 200 a candy from May 4 onwards.