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Domestic cotton prices likely to remain sensitive next fiscal

As per a India Ratings and Research (Ind-Ra) report, domestic cotton prices to remain under pressure in 2016-17 due to continuation of Chinese direct subsidy-based policy and lower demand from spinning mills. Though Bangladesh, Pakistan and Vietnam have replaced China with India as a supplier, volumes are picking up at a slow pace, and are unlikely to match Chinese demand. During April-December 2015 India produced 28.5 million bales as against 29.5 million bales in FY15 and 31 million bales in FY14 against which exports have been 5.3 million bales (4.2 million bales in FY15 and 9.3 million bales in FY 14).

In CY17 (International Cotton Year, which commences from August and ends in July), the ratings agency expects cotton prices to stay firm. Domestic prices had declined in CY16 in line with Ind-Ra's expectations and are expected to remain under pressure in CY17 as well. According to the rating agency, the international cotton prices, however, will remain sensitive to the release of cotton by China from its cotton reserves, which Ind-Ra estimates to be around 59 per cent of global cotton stock at FY16.

Chinese cotton reserves will directly impact the quantum of imports in that country and consequently, global stock levels outside China, the report added. The cotton industry is likely to revive moderately in CY17 as exports to Vietnam, Pakistan, and Bangladesh grow. Vietnam is likely to increase its spindles capacity by 30 per cent in FY17.

The local cotton production in Pakistan and Bangladesh is unable to keep pace with the increasing demand for apparels from these locations, providing opportunities to Indian exporters.