The rather surprising crash in global cotton prices that took place in April has resulted in significant import contracts being signed by Indian mills. In cotton year 2000-01, India may end up importing over 2 million bales. Trade sources say contracts for imports of over 1.5 million bales have already been signed.
However, domestic prices continue to rule at levels higher than global prices. The standard contract (having specifications more or less similar to the NYBOT contract) is quoting at around Rs. 50-51/kg, which is about the same as NYCE quotes of 45-46 US cent/lb. In terms of quality, Indian spinners are generally inclined to pay around 10% more for imported cotton because of lower ash content and more uniform quality. Some are willing to go even higher.
The Indian crop for the current season is estimated at around 14 million 170-kg bales, while mill consumption may be around 15 million bales. However, at least 1 million bales go toward non-mill consumption for applications such as surgical cotton and mattresses. Thus, the markets perceive imports of 2 million bales as inadequate for restoring the demand-supply equilibrium. That is what explains the difference of about 10% between Indian and global prices.
The consumption of cotton, however, has started declining because of sluggish exports of cotton yarn. The situation is fluid and cotton prices may move either way in India. Mills have signed large import contracts in the last few weeks in the range of 47-50 cent/lb., but few are inclined to cover their entire requirements. Nevertheless, most expect prices to soften at least marginally within 4-6 weeks, when physical shipments start arriving from the U.S. and Australia.
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