High cotton production due to greater-than-average rainfall in the country and increased sowing by farmers may adversely impact prices. As per Cotton Corporation of India (CCI) estimates, cotton production is likely to increase 13.6% to 35.5 million bales (170kg) for the October 2019-to-September 2020 season. Area under cotton cultivation has increased by 6% y-o-y during the current season, said India Ratings and Research (Ind-Ra) on Monday.
It is also to be noted that India's raw cotton exports fell by 75% during 1HFY20 owing to high domestic prices and the availability of cheaper cotton from Brazil, the US and Vietnam, hence, the prices will take a hit, the agency said.
Cotton prices witnessed a moderate reduction in September 2019, with the CCI buying at the Minimum Support Price (MSP) in Punjab, Haryana, Gujarat and Rajasthan. The CCI has purchased approximately 1.2 million bales (around 1%) of the total arrival in the ongoing cotton season (October 2019-September 2020). The cotton crop in Maharashtra is estimated to be delayed, as unseasonal rainfall damaged around 1.9 million bales in the state. The damaged crop is estimated to fetch prices that would be 30%-35% lower than the MSP due to high moisture content.
The spinning industry saw disruptions in production in 2QFY20 owing to reduced demand and volatility in cotton prices. While demand from China improved marginally in August and September 2019, a further improvement would be healthier for the spinning industry, which has been facing margin pressure and low capacity utilisations.
Manmade fibres (MMF) saw the second successive month of stabilisation on the back of stable crude prices. The short-term instability in prices in September 2019, following the attack on the refinery of Aramco, Saudi Arabia, had led to temporary pressure on the margins of synthetic fibres. With the recovery of the attacked oil sites, crude prices returned to stable levels, with a corresponding impact on MMF prices, the agency said.
Fabric exports grew in 1HFY20 owing to an improvement in the quality of Indian fabrics and addition of newer markets. During 1HFY20, exports amounted to Rs 12,489 crore (1HFY19: Rs 11,611 crore), with the main markets being Bangladesh (19%), Afghanistan (7.4%) and Sri Lanka (6.2%).
A sharp rise in imports of cheap apparel from Bangladesh has rendered the Indian textile value chain uncompetitive. Readymade garments recorded a degrowth of 14% month-on-month in September 2019 due to a steep fall in demand from the US and the UK, Ind-Ra pointed out.