The abnormal and sudden spurt in cotton prices has taken the mill sector by surprise. Though mill sources contend that the price of the white fibre tends to move north in July, the 47 per cent increase between January and now is considered by far the highest in recent years.
The price has shot up from ₹32,500 a candy in January 2016 to ₹33,700 in early March before skyrocketing to ₹47,800 a candy on Tuesday (spot rate for top-quality fibre).
Mill sources, however, are hopeful of a price correction during the first week of August, going by the traditional price-movement cycle over the last decade.
Although the exact stock position with the trade (outside the mills) is not known, industry insiders say it would be double the usual volume at around 45 lakh bales (against the usual 20-22 lakh bales around this time of the year).
“Globally, other than China, cotton stock is very comfortable. There is no reason to panic,” said J Thulasidharan, Managing Director, Rajaratna Mills Ltd.
Asked how the mills are managing to operate as the price of the raw material has soared in recent weeks, he said: “Mills located in South India bank on imports as this is cheaper by 7-8 per cent compared to domestic cotton. But the problem lies in getting the fibre on time. It takes close to 3-4 weeks and the smaller units do not have the wherewithal to maintain that much inventory.”
Industry insiders estimate the imports to have crossed 20 lakh bales this season against the estimated quantity of 11 lakh bales.
Meanwhile, the apex body of textile mills in the south — The Southern India Mills’ Association — categorically states that the industry does not want the Government to meddle with the policy at this juncture.
“We have been seeking a level playing field since 2008,” SIMA Secretary-General K Selvaraju said, quickly adding, “since our cost of funds is on the higher side and cotton is a highly volatile commodity.”
“The government can consider enhancing the credit limit and the margin money, as this would involve no financial outflow, or draw up a Cotton Reserve Policy,” he said.
The association had suggested the need for a “Price Stabilisation Scheme” or at least an interest subvention scheme at least during the peak season (November to April) — to tide over this volatility. But these suggestions are yet to see the light of day.
Industry sources say the Cotton Corporation of India should procure at least 65-70 lakh bales, maintain a reserve, and sell only to the consuming units.
Meanwhile, Selvaraju pointed out that the lack of reliable data on cotton stocks available with the trade added to the ruckus. Industry insiders emphasised the need for making the cotton collection and pressing figure mandatory.