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Indian cotton prices under pressure

Cotton prices in India will stay under pressure in financial year 2017 as volumes are unlikely to match Chinese demand. The continuation of Chinese direct subsidy-based policy and lower demand from spinning mills will keep domestic cotton prices under pressure.

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. The operating margins will stay in the one to two percent range for ginners and traders, but the profit after tax margins may improve as sector companies reduce stocks and focus on receivables management.

The cotton industry is likely to revive moderately in financial year ’17 as exports to Vietnam, Pakistan, and Bangladesh grow. Vietnam is likely to increase its spindle capacity by 30 per cent. 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.

However, in view of China reducing imports significantly, and the moderating demand from Indian spinning mills, the demand for cotton will increase at a marginal rate and prices are unlikely to increase materially from the current levels.