Cotton trade in India has taken a big hit following the coronavirus outbreak and the subsequent nationwide lockdown. While insiders say cotton consumption may fall by about 25-30 lakh bales in the current year, there is greater concern in the ginning and pressing industry, which is facing financial stress.
The Cotton Association of India (CAI) has written to the Prime Ministers’ Office (PMO) and the ministries of Textiles, and Agriculture and Farmers’ Welfare seeking assistance and support for the cotton ginning and pressing factories.
Fall in consumption
Atul Ganatra, President, CAI, told BusinessLine: “Consumption is estimated to drop by 25-30 lakh bales due to the lockdown. The cotton pressing activity is also likely to suffer. So cotton stocks may get stockpiled for next year as many farmers are not willing to sell their crop at the current rates.” Earlier this month, CAI had estimated the total cotton consumption demand at 331 lakh bales, including 288 lakh from mill consumption and the rest from small-scale and non-mill units.
The lull in consumption is set to impact prices, too. On the market outlook, Ganatra said ginned cotton prices have crashed by about 10 per cent during the lockdown period from ₹40,000 per candy (of 356 kg each) before lockdown, to about ₹36,500 now. On the other hand, the international cotton prices are hovering around 65 US cents per pound FOB port delivery, which works out to ₹39,000-40,000 FOB Indian costs.
Impact on prices
Trade views Indian cotton price to be very reasonable at the current ₹36,500. It is expected that weak demand outlook and trade disruptions will keep Indian cotton prices in the range of ₹35,000-39,000 for the next 3-4 months.
Cotton trade and textile industry involves about 50-55 million people, including 6 million cotton farmers and about 40-50 million workers engaged in processing, trade and manufacturing. In the letter to Prime Minister Narendra Modi a month ago, CAI had recommended relief measures for the sector, which included conversion of existing working capital limits to long term loans, moratorium on loan payments due for at least six months, interest subvention of at least 5 per cent for all stakeholders, and not just exporters.
Meanwhile, due to the uncertain situation, most of the ginners are not ready to procure kapas (raw cotton) as there is no clarity where to sell and from where to get the money. Most ginning units are shut, leading to a drastic fall in pressing activity.
“At present about 50 spinning units in Gujarat and some others in Punjab, Haryana, Rajasthan, Himachal Pradesh and Maharashtra have got the permissions to operate. Also, in Tamil Nadu we hear that few mills, which are in green zone are running. But the outlook depends on how the government makes the exit plan for lockdown,” Ganatra said.
K Selvaraju, Secretary General, Southern India Mills’ Association, said, “Usually, the mill consumption is about 25-27 lakh bales per month. Due to lockdown it has become zero. Also, there are no takers as well. There is no clarity about when operations will resume, so going ahead we may end up with huge carryover stock.”