By Shrikant Kuwalekar and Kavita Desai - Cogencis,
Thursday, Sep 19
MUMBAI – Cotton Corp of India will not give in to pressure from textile cartels to sell its stocks at a cheaper rate, as the quality of cotton is far superior, P. Alli Rani, chairman and managing director of the state-owned agency, told Cogencis in an interview.
"I have very high quality cotton. I can firmly say that the stock is less than 2.5% trash...I also have a premium stock which is less than 2.0% trash," Rani said. Her comment comes in the wake of a cry by textile bodies to the government to direct Cotton Corp to sell its stocks at a cheaper rate.
The company currently holds around 900,000 bales (1 bale = 170 kg) out of around 1.1 mln bales of cotton it procured in the current marketing season ending this month. It has been auctioning cotton slightly at a premium to the ruling price of average quality produce.
The price gap between cotton sold by the agency and that prevailing in the market has widened significantly in the last few days after global prices fell by a steep 15%. The fall in local prices that followed was not as steep as that in the global market, mainly due to extremely tight supply. This was because output in the current year was at a decade-low due to droughts in key producing states of India.
Currently, Cotton Corp offers cotton at around 49,000 rupees a candy (1 candy = 356 kg) compared with the current market price of 43,000-43,500 rupees, because of which sales are slow.
Rani said that Cotton Corp would rather hold stocks instead of cutting prices and incurring losses, as cotton is not a perishable commodity. She took over the reins of Cotton Corp in 2017 and is proud of converting it into a much cleaner and transparent entity by eliminating the nexus between its employees and industry players that saw the state-run company incur financial losses and tarnished its image.
Before joining Cotton Corp, she was with the Indian Railways, and before that has worked with logistics behemoth Container Corp of India, and telecom giant Bharat Sanchar Nigam Ltd, among other organisations. Last year, she opposed ginners across the country and the Punjab government, to ensure Cotton Corp purchased only good quality cotton directly from farmers and avoid intermediaries.
Rani, who has been focussing on improving the perception and valuation of Indian cotton, is of the view that Indian traders taking Cotlook A Index as global price benchmark was hampering discovery of fair price for Indian cotton, despite it being the world's largest producer. For cross-boarder deals, traders use Cotlook A index, which is a simple average of the five cheapest rates of upland US cotton from 19-odd destinations traded globally, which is susceptible to manipulations, Rani said.
Indian traders must understand that the cotton lying with Cotton Corp is of premium quality than the variety benchmarked to Cotlook and traders must pay higher for quality, she said. She denied industry allegations that Indian spinners have been losing in the international cotton yarn market due to premium pricing of the raw material, largely attributed to higher minimum support price.
"This is a false situation perpetuated...If Bangladesh can import cotton from India at high prices and sell yarn in the international market, why can't India," Rani said, adding,"...the truth is we (spinners) are not prepared to pay for good quality (cotton)."
India's exports were down due to bilateral trade pacts and because of competitors such as Vietnam, South Korea and Bangladesh getting preferential accesses in the global markets. Bangladesh meets over 60% of its cotton requirement from India and figures in the world's top two exporters in various textile products. The country has been the top destination for Indian cotton over last few years.
India's cotton yarn exports are likely to have fallen by more than 50% in August and likely down over 35% in Apr-Aug, according to industry estimates. If Indian traders found Cotton Corp's prices too high, why weren't they importing the cheaper US cotton, questioned Rani rhetorically. "Because America is dumping all bad quality of cotton and Cotlook Index is the average of the lowest quotes. That is the true picture," she said.
Rani said India's cotton production in 2019-20 (Oct-Sep) was likely to be at least 35 mln bales, up nearly 4% from the previous year due to higher acreage and better weather conditions in most of the growing regions. In the last few years, India's cotton output has averaged around 35 mln bales. "Based on five-year average yield of 493 kg/ha and estimated area of over 12 mln ha, it is expected that total output may remain around 35 mln bales," Rani said.
According to farm ministry data, India's cotton sowing was up 5% from a year earlier at 12.7 mln ha, with nearly 94% of the area being under the genetically modified Bt cotton, which should increase productivity.
Rani said Cotton Corp is ready to procure 10 mln bales if prices fall to minimum support levels. "We have opened 360 centres across the country, and can add another 50 centres," she said. India is looking at above-average output in the coming season due to well-spread rains in key growing areas and increase in acreage. This, and the fall of benchmark Cotlook price below the minimum support price will keep domestic prices down for a prolonged period as new harvest hits market from November, forcing Cotton Corp to purchase large quantities.
Last year too, Cotton Corp had prepared for a similar situation. In the first few weeks it bought over 1 mln bales, mostly from Telangana, Madhya Pradesh and Maharashtra. But prices recovered handsomely later as the crop size was much lower.
This led Cotton Corp to cut short its intervention. Rani said prices will be under pressure, but is optimistic of a recovery soon as people realise that global weakness may have a limited impact on Indian cotton prices. Also, China may turn to India to replenish its reserves after destocking heavily in the past two to three years. End – (Source: Cogencis.com)