Indian dealers have signed contracts to import around 180,000 bales (1 bale = 170 kg) of cotton so far in the current season starting 1 October. The imports will be sourced predominantly from the US, Egypt and West Africa because of the recent rise in domestic prices.
Of the total quantity, nearly 80,000 bales have been contracted in the last two weeks alone for the consignment arriving in Dec-Jan. Higher domestic prices in the beginning of the season and strong demand from mills in southern India, particularly those in Tamil Nadu is encouraging imports.
A sudden 4 per cent appreciation in the rupee against the dollar in three-four weeks and uncertainty over domestic crop due to droughts have also had a bearing on imports.
Lower domestic supply may lead to imports rising to 2.0-2.5 million bales in 2018-19, which is way above the Cotton Advisory Board’s estimate of 1.5 million bales.
Prices of Indian cotton were 4-6 cents per pound higher than better quality US produce. The premium has now narrowed to 2-3 cents, still attractive enough given the superior quality of imported cotton.
On ICE Futures US, prices of the benchmark cotton contract, which ruled around 81 cents in October, have not fallen to 77.5-cent level, while on Multi Commodity Exchange of India, cotton prices have hit a six-month low of 21,500 rupees a bale from 23,000 rupees in October.
Irrespective of the crop size, India typically imports around 500,000 bales of extra long staple cotton from the US, Africa or Australia as it is not produced locally. It also imports 500,000-700,000 bales of contamination-free cotton and both varieties are inelastic to prices.
Quantity and quality of the domestic crop is a major concern though the first round picking is expected to be good,” said J. Tulasidharan, president of Indian Cotton Federation. Last week, the Cotton Advisory Board, under the ministry of textiles, pegged India’s output for 2018-19 at 36.1 million bales, lower by 900,000 bales on year, but much higher than industry expectation of 34.0-34.5 million bales.