Cotton prices may fall further on higher output, weak demand: Ind-Ra report

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Cotton prices continued to reduce in August 2019, mainly due to a fall in international prices, rating agency India Ratings and Research (Ind-Ra) said in its latest report, adding that it expects prices to fall further as global production is likely to be higher than demand growth.

With local prices (MSP) being higher than international prices, cotton imports are rising. Till 31 August 2019, the import of cotton was 2.3 million bales, up 0.8 million bales than that recorded in the previous cotton season. This would further reduce domestic cotton prices, the agency noted.

Cotton yarn continues to see reduced exports owing to the low demand of yarn and increased competition. Exports fell 40 per cent month-on-month during July 2019, mainly due to the 80 per cent year-on-year fall in the demand from China. China has entered into second phase of free trade agreement with Pakistan on goods worth USD64 billion, of which cotton yarn directly competes with India’s, Ind-Ra said.

Manmade fibres saw the second consecutive month of stabilisation on stable crude prices in August 2019; however, the instability in prices in September 2019 with the attack on refinery of Aramco, Saudi Arabia created pressure on margins of synthetic fibres for some time. The prices have corrected by 20 per cent subsequently with the positive news of fast recovery of the attacked sites.

Apparel exports are seeing a moderate recovery with the stabilising demand from the US. The US-China trade war seems to have no major impact as the apparel exported by China for July 2019 were 35 per cent higher than those in the previous month. India is yet to see the benefit in the trade war, as only a 10 per cent month-on-month increase in exports was recorded in July 2019, Ind-Ra said.

Capital expenditure in textiles has been majorly to replace machines with new technologies and add premium/ niche products in the existing line-up. Outstanding projects have outpaced the completed ones, owing to muted demand, volatility in cotton prices and the US-China trade war, the report said.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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