Indian cotton prices remain strong amid tight supply

Indian spot cotton price continues to hit multi-year high recently, mainly driven by the expectations of production reduction, tariff imposition on cotton imports and strong consumption. The low inventory shows the tight supply in India, which may continue to support cotton prices.

1. Indian cotton prices hit new high

According to the spot rates released by Cotton Association of India, by Jan 5, the rates of S-6, 29mm, have risen to Rs. 72,100 per Candy, equivalent to 123.78cent/lb, hit a ten-year high.

During the traditional intensive arrivals of cotton, Indian cotton prices usually step downward overall, while in 2021/22 season, cotton prices continue to hit new high, which may be mainly stimulated by tight supply.

2. 2021/22 Indian cotton production is likely to reduce

This season, the planting areas of Indian cotton are supposed to reduce by 1.022 million hectares or 7.8% from last season. On one hand, during the planting period, the surging COVID cases led to the limited labors, and in the meanwhile, the higher seed and materials prices dragged down the cotton sowing. On the other hand, the rainfall in Jul was much higher than the normal level, and the uneven distribution impacted cotton sowing and development.

In addition, the cotton seeds have caused the cotton yield below 500kgs per hectare in recent years. This year, cotton crops in Punjab and nearby regions face the attack from the pink bollworm.

According to AGM, by Dec 30, cumulative arrivals of cotton in India reached 1.84 million tons, down 300kt from the 3-year average. Affected by the lower planting areas, seed problem, excessive rainfall and disruption from the pink bollworm, Indian cotton production is likely to reduce this season.

3. Tax levy restrains cotton imports

On Jul 20, the Finance Minister rejected a proposal to abolish the 10 percent import tax on raw cotton (a 10 percent import tax on raw cotton was imposed on Feb 2 2021), saying that the tax was to protect the interests of Indian cotton farmers. In fact, after the tariff imposition, Indian cotton imports began to continue to be at a low level. Some enterprises have asked for cancelling the tax many times, but the tax imposition continues, which may restrain the cotton imports.

4. Cotton consumption is strong overall

According to Cotton Association of India, in May-Nov, monthly average consumption reached 488kt, a relatively high level in recent years.

In 2021, Cotton Corporation of India has sold about 1.675 million tons of cotton, and the remaining stocks have been low.

According to Cotton Association of India, by end Nov, cotton inventory of spinning mills, CCI, MNCs, Ginners was about 1.563 million tons, down 30.1% year on year. The low cotton inventory shows the tight supply in India.

Overall, Indian spot cotton price continues to hit multi-year high recently, mainly driven by the expectations of production reduction, tariff imposition on cotton imports and strong consumption. The low inventory shows the tight supply in India, which may continue to support cotton prices.