By: Sanjeev K Budhiraja, CEO, Smart Sourcing Inc.
Sanjeev K Budhiraja
We would like to apprise you of all the latest developments taking place in today’s yarn market in the wake of Bangladesh’s current turmoil, Israel-Hamas & Ukraine-Russia non-ending war situation.
As you all are quite aware there has been an unprecedented upsurge in Indian cotton prices in the last couple of days.
It is happening largely due to speculative trend amongst cotton traders due to the following reasons:
- The area under cotton cultivation has been reduced to 14%
- Cotton stocks of Indian spinning mills have depleted
- Monsoon withdrawal is a bit delayed
- Heavy torrential rains during peak cotton season have damaged the cotton crop badly.
- In order to salvage the situation, Indian mills are importing cotton from Australia, Brazil, Africa, Egypt etc as due to Red Sea attacks, ocean freights are on an upward trend. Vessels are stuck due to transhipments resulting in delayed deliveries at the destination ports which is further escalating cotton prices.
As per the agriculture ministry, Cotton sowing all over India up to 31st August has reached 111.74 lacs hectares down by 14% against 129.34 lacs hectares in the last 4 years.
Last year same time sowing area was 123.11 lacs hectares down by 9.20%
After Bangladesh Turmoil resulting in political uncertainty on 5th August, spinners in India stopped buying from the CCI. Keeping in view all the recent developments, cotton prices have increased from INR 56000 to INR 60000 per candy in the last 15 days which is nearly a 6-7% increase whereas yarn prices have increased only by 4%. Yarn prices of Ne 30/1 CCH which were around INR 240 per kg have increased to INR 250 per kg, which amounts to an increase of 4% only whereas it should have been increased by 9%.
So even at this price level, EBITDA margins are negative. CCI has left with only 11 lacs (11,00,000) cotton bales out of their purchase of 33 lacs (33,00,000) bales of last season’s crop. Big MNCs like Olam, LD etc. have already cleared their stocks in July and are currently not buying cotton.
Despite the fact that the cotton market is too sluggish in all international markets, Indian mills are still running at 75 to 80% production capacity, so spinning mills are panicked about buying as the fresh cotton arrival is further delayed due to La-Nina cyclonic activity as well as low-pressure areas situations over West central & adjoining northwest Arabian sea as per IMD weather forecasting reports. IMD has released the September month rainfall forecast and as per them above normal rainfall would be received in Northern, Central and parts of Southern cotton growing regions, if it so happens then it would damage crop quality and quantity depending on its intensity.
Special Report on the Current Cotton Sowing for the Upcoming Season
Heavy rains damaged the standing crops in Gujarat, major impact was on cotton, Groundnut and soya bean crops. Very heavy rains lashed this week in Gujarat with more than 20 inches.
More details:
- Recent heavy rains in the region of Saurashtra have caused significant damage to cotton and groundnut crops.
- The continuous rainfall over the last 60 hours has particularly affected the advanced cotton crop, causing concerns among agricultural experts.
- In contrast, groundnut and soybean crops, which were planted more recently, have benefited from the rains, especially in areas where planting was delayed.
- The most affected areas include Rajkot, Junagadh, Bhavnagar, Botad, Amreli, Gir Somnath, and Porbandar districts, where cotton, groundnut, and soybeans are widely cultivated.
- In Junagadh, Porbandar, and Gir Somnath districts, 70% of the cultivated area is under cotton and groundnut.
- In Bhavnagar and Botad districts, 60% of the cultivated area is under cotton.
- In Amreli district, 60% of the area is under groundnut and 40% under cotton.
- Farmers who planted cotton early have suffered losses as the rains caused defoliation of the cotton plants, which may lead to further drying and damage.
- Agricultural experts recommend that in areas like Junagadh, where cotton plants have drooped, farmers should raise and press the plants, apply a mixture of 150 grams each of clean and blue copper with urea or ammonia to the stalks, and water the fields with well or bore water.
- Cotton cultivation is expected to decline in areas like Vanthali, Manavdar, Keshod, Mangrol, and Porbandar, where farmland has been washed away.
- The recent rains are beneficial for peanut and late cotton crops, as well as for soybean crops that needed rain at this time.
- In Rajkot district, cotton is planted in 1.83 lacs hectares, groundnut in 2.68 lacs hectares, and soybeans to a lesser extent.
- It is estimated that the cotton crop in Rajkot district has been damaged due to waterlogging from the recent rains, while the groundnut crop has benefited.
Latest Cotton Balance Sheet
As of 25th August, Stocks are limited and lowest of last many years in India
14 lacs bales with CCI
7.5 lacs – ginners
25 lacs – mills
46.5 lacs total available
30 lacs bales are needed for consumption of 35 days to go for the new season 30/9/2024
Closing stock will be around 16.5 lakhs bales only.
Looking at this tight Indian cotton balance sheet, if new crops do not come in October month, then the price for Indian cotton will skyrocket, if ICE futures do not increase in the coming days Indian cotton basis will go up to 2500.
Whereas ICE is hovering around 69.51 and expected to be range bound +/- 2.
It is quite evident from the above facts that Indian cotton which is hovering around 5600 per maund (J34) average is more expensive than international cotton making Indian cotton yarn more uncompetitive resulting in mills shutting down their production capacity slowly and gradually.
Few mills in the Northern and Southern parts of India have started getting deliveries of imported Australian, Brazilian cotton etc.
A silver lining is there as big brands like C&A, M&S, H&M, Tommy Hilfiger & PVH etc are carrying average inventory levels hence the pipeline is dry, and they are on a buying spree.
That’s why demand in international markets has increased all of a sudden.
Team Smart Sourcing’s advice in this dynamic market conditions is to maintain at least current price levels and not get bogged down with selling pressure. This will help in making transactions smooth and boost the yarn demand multifold. We strongly feel that those mills that are using sustainable energy levels like Solar or wind power have better chances of survival in such a depressed market
International Yarn Market Scenario
China will also not start actively buying cotton yarn from India as their local cotton prices are range bound at 13500 RMB per tonne and as per their CCS cotton yarn index figures, import of cotton yarn from India is not viable at this moment except counts like 16/1 KW, 21/1 KW, 32/1 KW and 40/1 KW.
Keeping in mind the political unrest in Bangladesh, big brands worldwide are looking for alternative destinations like India, Sri Lanka etc but still finding difficulty as in any case they cannot ignore Bangladesh for volumes and competitive prices.
Europe and Latin America, which are fragmented markets, are buying small quantities to fulfil their day-to-day needs as the Iran (Hamas) and Israel war is looming large.
Domestic Market Scenario
Despite all the odds, domestic market prices are still supporting due to a sudden increase in demand because of the following reasons:
Following the recent crises in neighbouring Bangladesh, the leading textiles and apparel company, Raymond, has witnessed a surge in global inquiries. Chairman & Managing Director Gautam Hari Singhania expressed the company’s readiness to capitalise on this opportunity. Raymond, having invested significantly in its garmenting facilities to become the world’s third-largest suit maker, is poised to benefit from the current market conditions.
Challenging Times for Spinners: Current Market Scenario
The recent floods in India and Gujarat, triggered by excessive rainfall over the last five days, have significantly altered the cotton market dynamics and predictions. The cotton crop, which had shown promising growth until July 15th, with plants reaching up to 4 feet and blooming flowers, has been devastated by the continuous downpour. This has resulted in a 12% shortage of cotton for the upcoming season.
The Indian Meteorological Department (IMD) has issued warnings of further rainfall over the next five days, posing an additional threat to the cotton crop, making it uncertain to predict the production volume and quality. India is likely to witness the lowest cotton crop in the last 20 years.
To mitigate this threat, it is essential for the government to remove import duties on raw cotton. Some Indian mills had imported cotton under advance licence, which partially addressed the shortage. However, cotton prices have surged by 6-7% in the last 15 days, making spinning viability extremely challenging. Spinners are struggling to survive, with daily cash losses, which may lead to partial closures of spinning capacities in India.
The yarn market is already facing demand and pricing pressures. We must prepare ourselves for these challenges, hoping that demand will pick up from November onwards. Our recent visit to the China exhibition was disappointing, with low demand and buyer attendance. We are now pinning our hopes on the Bangladesh market, which is recovering from recent political turmoil and retailer confidence issues.
On the domestic front, we expect demand to come from the local market as we approach our festive season, including Navratra and Diwali/Durga puja. Until then, we remain cautious.
Conclusion: We foresee that the cotton fibre and cotton yarn market is going to remain by and large range bound. We don’t see any bullish or bearish trend in the near future in both.
Disclaimer:
The views related to cotton and yarn markets expressed above are based on the data collected from various sources like websites and published articles and are variable with the timeline.
Report compiled by Team Smart Sourcing Inc. and based on reliable publications and proper market research.
