Cotton Prices Decline After Import Duty Suspension; Market Expects Further Softening

11% duty removal on cotton imports triggers price correction as industry anticipates improved supply availability

Cotton prices have declined following the government's decision to suspend the 11% import duty on cotton until October 31. Industry participants reported an immediate impact on domestic prices, with expectations of further easing in the coming weeks.

India's decision to suspend the 11% import duty on cotton until October 31 has led to an immediate correction in domestic cotton prices and yarn rates.

Market participants reported that cotton prices declined by up to 3% on Monday and could fall by another 1-2% in the coming days. The development comes after cotton prices had increased by 27% over the previous three months.

"Cotton prices have started softening, while we have advised the spinning mills to reduce yarn prices," said K Selvaraju, secretary general of Southern India Mills Association (SIMA).

Prices of 29 mm cotton had risen to ₹69,200 per candy by mid-May from ₹54,200 in February. Prices later eased to ₹65,000 per candy over the last 20 days as cotton futures on the International Cotton Exchange (ICE) softened.

On Monday, government agency Cotton Corporation of India (CCI), the largest cotton buyer in the country, reduced cotton rates by ₹700 per candy to ₹64,300 per candy. Yarn prices have also declined by ₹10 per kg, according to industry sources.

"Many brokers have reported that a further decrease in prices is expected as sale is not happening at Monday's discounted prices," said Padhida Jain, founder chairman of Khandesh Ginning and Pressing Association.

Although international cotton prices remain lower than domestic prices, increased availability of imported cotton is expected to ease prices and reduce stockpiling.

Before the duty suspension, cotton prices were projected to rise to ₹75,000 per candy, largely due to stock accumulation, according to trade representatives.

The Finance Ministry issued a notification on Saturday suspending the import duty on cotton from June 1 to October 31.

Industry bodies, including SIMA and the Tiruppur Exporters Association, had previously urged the government to remove the duty. They argued that Indian manufacturers were losing competitiveness against rivals in Bangladesh and Vietnam, which enjoy duty-free access to imported cotton.

Exporters stated that India has become increasingly dependent on imported export-grade cotton following several years of stagnant domestic production. Rising raw material costs have affected margins and reduced the competitiveness of Indian yarn and garment exporters in international markets.

According to SIMA, India's share of global textile trade has remained largely unchanged at about 4% over the past two decades, while Bangladesh's share has increased to 6% from 2% and Vietnam's to 5% from 0.6%.

"Currently, the cotton inventory is not with farmers but with stockists and multinational companies, who have started increasing prices and making exports unviable," said Vijay Agarwal, chairman of Cotton Textile Export Promotion Council. "The hoarders will have to lower prices as the import duty has been removed."