By Munish Tyagi
The story of Indian cotton in the last 2 years has been the one of a roller-coaster ride for the prices and mismanagement of its true output forecast by the agencies and, confused import of cotton when it was required and of course the free cartelisation of the cotton lobbies that kept hiking to sustain the price in Rs 90,000+band.
The New 2022-23 crop is just one month away, and does last year Story repeat?
The two main spoilers could be the global trade reporting the lower end of the year carry-forward stocks; and the typical erroneous and approx. estimate for the new Indian crop size which is presently forecasted between 33.5 to 34 million bales, which is bound to get revised due to droughts, rains and other factors.
The North China Cotton is also showing revival, with USA sanctions softening up. India will again be second to China and in fact become a net importer considering India’s crop year 2021-22 output of approximately 5.4-5.6 million ton v/s the demand/ consumption at 5.8 million ton and no accounting for accounting for export.
USA and Brazil will be the other two major cotton producers globally and can cut down any serious export efforts for India’s cotton. The global story is different for this season as we have two of the largest economies i.e. China and Bangladesh in turmoil and distress. Even our yarn exports are around 50% of the regular yarn export.
With the pandemic still raging in global pockets, the ongoing war in Europe, geopolitical tensions, the US-China stand off, all leading to stress and uncertainties in the international supply chains affecting global inflation and trade. Hence, there are clouds of uncertainties in the global market before the new Indian cotton arrives by October 2022.
The World Cotton story and new crop projection
Other factors from to accentuate market distress and rationale for the increasing price of the new crop are: crop damage from recent late rains, earlier summer drought and USDA’s projections for lower cotton crop size and the global output. It is also scary to note that the global cottons consumption and outputs may be at par at about 26 million tons for use and output, with no margin for inventory.
This scenario is less likely to change, but damage further due to the ongoing Russia-Ukraine war, pending China-Taiwan conflict and its full impact will be seen on the European inflation amid critical shortage of gas in the coming winter season.
India’s Cotton Play vis-a-vis new crop projections
Cotton for India’s textile industry still remains the majority and the maximum used fibre with a share of 60% of the fibre mix for textiles produced for domestic and export market. This, unfortunately is very skewed and biased despite India having third largest output and capacity for MMFs like polyester, viscose and filaments.
It is rather late with the new PLI scheme, with its focus on high volume consumption of synthetic fibers and production of technical textiles etc; it is yet to take off and show practical outcomes. The corrections for increasing the MMF share in the fiber mix should have begun at least from 2010.
This would have created more markets for blended v/s cotton yarn and eased the pressure on cotton demand and price to the value adding textile sector.
As per the above view, it is clear and pre mandated that the S6 variety [28.5 mm+] will have threshold price of Rs 90,000+ per candy for the new crop at the end of October 2022 and other types will be price followers on pro-rata basis. This is bad enough to once again disrupt value adding sectors.
Impact on the ‘value adding’ yarn & fabric chain
The days for cotton yarn ex. 30s Ne Comb going up to Rs 400/Kg or Fob $5/Kg are likely to return, to disrupt rattle and shake up both the yarn spinning mill sector as also the value adding fabric/garment making and eventually the apparel and home textile exports.
It is most difficult to deduce the export volume and F.E. losses to India’s textile exports vis-à-vis fierce competitors like Bangladesh, Vietnam, Pakistan and China as usual.
Roadmap and course correction for textile industry
Owing to the ongoing inflation, the unending Russia-Ukraine war, then never-ending US-China and US-Iran conflicts, the retail sales will weaken leading to lesser demand for inputs and ripples back upstream- like during an economic recession. India may think of following ways out, at least for the future:
- Diversified fibre mix with MMF use, with less dependence on cotton,
- New diversified markets, that can absorb the prices,eg.to South America,
- Realistic and almost binding estimation of cotton output by such agencies, and not creating dummy shortage call later every quarter,
- Allow free and duty-free imports of cottons so as to maintain balance between cotton output, its mills use and exports of 5-8 million bales preferably, and monitoring the stock to use ratio for the full 2022-23.
- Keeping a check and control on the cotton cartels, if any, by strict enforcement.
The above suggested measures will help elevate the situation to be amidst rising global inflation and falling retail consumption that is now impacting and leading to more demand of food, grocery, fuel, gas etc. over the textile products.
