Ignoring fundamentals, cotton prices rush as high level of ‘on-call sales’

Cotton prices in the international market have increased to almost a 11­-year­ high on the Intercontinental Exchange (ICE), but shareholders in the industry say the raise in natural fibre prices ignores fundamentals. According to the U.S. Department of Agriculture (USDA), global production is likely to be higher from earlier impressions this season to June, while consumption is expected to drop and ending stocks are set to rise.

Cotton has marched in the global market highly due to trade short covering resulting from very high level of “on-call sales” in the range of 6.5 million U.S. bales (8 million bales of 170 kg) in global markets, said, Prabhu Dhamodharan, Convenor, Indian Texpreneurs Federation (ITF).

“This is high compared with the average of 2.8 million bales such sales over the last few years. In no way, fundamental cotton demand is supporting the upside trend in prices,” he added. Analysts and traders accept that increasing crude oil prices have also resulted in cotton prices heading north.

The feature of the “on-­call sales” is that a buyer takes cotton from a seller or explorer without fixing the price. Some of these buyers had purchased cotton in November expecting that they could fix the prices in January. But prices did not drop in January, resulting in the buyers postponing the decision to fix the price for the cotton. This gave the space to explorers to additional push up the prices, said, Anand Poppat, a Rajkot­ based trader of cotton, yarn and cotton waste.

Poppat said that, Quality cotton is pricing at over ₹1,00,000 for a candy . The increase in cotton prices resulted in spinning mills increasing yarn prices by ₹40 a kg across all varieties from May 1. This has resulted in garment and knitwear producers demanding a ban on exports of cotton and cotton yarn.

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